Mathematical Sciences Department
Financial Mathematics Seminar
Speaker: Jaehyuk Choi, Peking University HSBC Business School
Monday, September 25, 2023
2:00 pm - 3:00 pm
Olin Hall 223
Title: Simulation schemes for the Heston model with Poisson conditioning
Abstract: Exact simulation schemes under the Heston stochastic volatility model (e.g., Broadie--Kaya and Glasserman--Kim) suffer from computationally expensive Bessel function evaluations. We propose a new exact simulation scheme without the Bessel function, based on the observation that the conditional integrated variance can be simplified when conditioned by the Poisson variate used for simulating the terminal variance. Our approach also enhances low-bias and time discretization schemes, which are suitable for derivatives with frequent monitoring. Extensive numerical tests reveal the good performance of the new simulation schemes in terms of accuracy, efficiency, and reliability when compared with existing methods. (This is a joint work with Yue-Kuen Kwok at HKUST. If time allows, I will also introduce a new simulation scheme for OUSV model as well.)