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Efficient hedging in Bates model using high-order compact finite differences

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  • Bertram During
  • Alexander Pitkin

Abstract

We evaluate the hedging performance of a high-order compact finite difference scheme from [4] for option pricing in Bates model. We compare the scheme's hedging performance to standard finite difference methods in different examples. We observe that the new scheme outperforms a standard, second-order central finite difference approximation in all our experiments.

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  • Bertram During & Alexander Pitkin, 2017. "Efficient hedging in Bates model using high-order compact finite differences," Papers 1710.05542, arXiv.org.
    • Handle: RePEc:arx:papers:1710.05542
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    References listed on IDEAS

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    1. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," The Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
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