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Weak Approximation of Stochastic Differential Equations and Application to Derivative Pricing

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Author Info
Syoiti Ninomiya
Nicolas Victoir
Abstract

A new, simple algorithm of order 2 is presented to approximate weakly stochastic differential equations. It is then applied to the problem of pricing Asian options under the Heston stochastic volatility model. 2000 Mathematics Subject Classification, 65C30, 65C05.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Mathematical Finance.

Volume (Year): 15 (2008)
Issue (Month): 2 ()
Pages: 107-121
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Handle: RePEc:taf:apmtfi:v:15:y:2008:i:2:p:107-121

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Related research
Keywords: Heston model; numerical methods for stochastic differential equations; mathematical finance; quasi-Monte Carlo method;

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  1. Mariko Ninomiya & Syoiti Ninomiya, 2009. "A new higher-order weak approximation scheme for stochastic differential equations and the Runge–Kutta method," Finance and Stochastics, Springer, vol. 13(3), pages 415-443, September. [Downloadable!] (restricted)
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