Diamond--cell finite volume scheme for the Heston model

The objective of this article is to propose a novel numerical scheme for solving the partial differential equation arising in the Heston stochastic volatility model. We discretize the governing advection-diffusion-reaction equation using the finite volume technique. The diffusion tensor is treated by means of the diamond--cell approximation. A theoretical result concerning the existence and uniqueness of the solution to the corresponding system of linear equations is proved. Numerical experiments regarding accuracy and order of convergence are shown.

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