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Strong approximation of a two-factor stochastic volatility model under local Lipschitz condition

Author

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  • Coffie Emmanuel

    (Institute for Financial and Actuarial Mathematics, University of Liverpool, Liverpool, L69 7ZL, United Kingdom)

Abstract

We establish theoretical properties of the solution to a two-variance-driven interest rate model with super-linear coefficient terms. Since this model is not tractable analytically, we construct an implementable numerical method to approximate it and prove the finite-time strong convergence theory under the local Lipschitz condition. Finally, we provide simulation examples to demonstrate the theoretical results.

Suggested Citation

  • Coffie Emmanuel, 2024. "Strong approximation of a two-factor stochastic volatility model under local Lipschitz condition," Monte Carlo Methods and Applications, De Gruyter, vol. 30(1), pages 55-72, March.
    • Handle: RePEc:bpj:mcmeap:v:30:y:2024:i:1:p:55-72:n:3
    DOI: 10.1515/mcma-2023-2021
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