Journal of Statistical Theory and Applications

Volume 18, Issue 4, December 2019, Pages 425 - 438

Generalized Componentwise Splitting Scheme For Option Pricing Under The Heston-Cox-Ingersoll-Ross Model

Authors
Maryam Safaei1, Abodolsadeh Neisy2, *, Nader Nematollahi3
1 Department of Statistics, Science and Research Branch, Islamic Azad University, Tehran, Iran
2 Department of Mathematics, Faculty of Mathematics Science and Computer, Allameh Tabataba'i University, Tehran, Iran
3 Department of Statistics, Faculty of Mathematics Science and Computer, Allameh Tabataba'i University, Tehran, Iran
*Corresponding author. Email: a_neisy@atu.ac.ir
Corresponding Author
Abodolsadeh Neisy
Received 1 August 2017, Accepted 27 June 2018, Available Online 17 December 2019.
DOI
https://doi.org/10.2991/jsta.d.191209.001How to use a DOI?
Keywords
Option pricing, Stochastic volatility, Stochastic interest rate, Heston-Cox-Ingersoll-Ross model, Componentwise splitting method
Abstract

In this paper, we consider a numerical pricing of European call and put options under the Heston-Cox-Ingersoll-Ross (HCIR) model. Based on this model, the prices of options are derived by solving a three-dimensional partial differential equation. We generalize a componentwise splitting scheme for solving this equation. The idea of this scheme is to decompose the discretized HCIR partial differential equation into six one-dimensional equations in six fractional time steps. These equations are represented in tridiagonal systems, which are solved by the Thomas algorithm. Moreover, the numerical experiments show that the European option prices are affected by changes in volatility, interest rate, strike price, and correlation factors. Furthermore, numerical experiments compare the calculated prices based on our scheme with the prices reported in the literature.

Copyright
© 2019 The Authors. Published by Atlantis Press SARL.
Open Access
This is an open access article distributed under the CC BY-NC 4.0 license (http://creativecommons.org/licenses/by-nc/4.0/).

Download article (PDF)
View full text (HTML)

Journal
Journal of Statistical Theory and Applications
Volume-Issue
18 - 4
Pages
425 - 438
Publication Date
2019/12
ISSN (Online)
2214-1766
ISSN (Print)
1538-7887
DOI
https://doi.org/10.2991/jsta.d.191209.001How to use a DOI?
Copyright
© 2019 The Authors. Published by Atlantis Press SARL.
Open Access
This is an open access article distributed under the CC BY-NC 4.0 license (http://creativecommons.org/licenses/by-nc/4.0/).

Cite this article

TY  - JOUR
AU  - Maryam Safaei
AU  - Abodolsadeh Neisy
AU  - Nader Nematollahi
PY  - 2019
DA  - 2019/12
TI  - Generalized Componentwise Splitting Scheme For Option Pricing Under The Heston-Cox-Ingersoll-Ross Model
JO  - Journal of Statistical Theory and Applications
SP  - 425
EP  - 438
VL  - 18
IS  - 4
SN  - 2214-1766
UR  - https://doi.org/10.2991/jsta.d.191209.001
DO  - https://doi.org/10.2991/jsta.d.191209.001
ID  - Safaei2019
ER  -