TITLE:
An Implicit-Explicit Computational Method Based on Time Semi-Discretization for Pricing Financial Derivatives with Jumps
AUTHORS:
Yang Wang
KEYWORDS:
SVJ Model of Bates, Time Semi-Discretization, Stability, No-Arbitrage Principle, Implicit-Explicit Backward Difference Method
JOURNAL NAME:
Open Journal of Statistics,
Vol.8 No.2,
April
24,
2018
ABSTRACT: This paper considers pricing European options under the well-known of SVJ
model of Bates and related computational methods. According to the no-arbitrage
principle, we first derive a partial differential equation that the value of
any European contingent claim should satisfy, where the asset price obeys the SVJ model. This equation
is numerically solved by using the implicit- explicit
backward difference method and time semi-discretization. In order to explain
the validity of our method, the stability of time semi-discretization scheme is also proved. Finally, we use a simulation example to
illustrate the efficiency of the method.