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.