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The Fokker-Planck partial differential equation is used to compute the probability density function of the Heston stochastic local volatility model. The solution of the Fokker Planck equation is required for the calibration of the leverage function, which plays an important role in the Heston stochastic local volatility model. The current study describes a numerical method for solving the nonlinear Fokker-Planck partial differential equation. The solution is demonstrated to converge to the one generated from the implied volatility surface by comparing call option prices. | The Fokker-Planck partial differential equation is used to compute the probability density function of the Heston stochastic local volatility model. The solution of the Fokker Planck equation is required for the calibration of the leverage function, which plays an important role in the Heston stochastic local volatility model. The current study describes a numerical method for solving the nonlinear Fokker-Planck partial differential equation. The solution is demonstrated to converge to the one generated from the implied volatility surface by comparing call option prices. | ||
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| + | <pdf>Media:Draft_Sanchez Pinedo_899413687pap_923.pdf</pdf> | ||
Revision as of 11:38, 23 October 2024
Abstract
The Fokker-Planck partial differential equation is used to compute the probability density function of the Heston stochastic local volatility model. The solution of the Fokker Planck equation is required for the calibration of the leverage function, which plays an important role in the Heston stochastic local volatility model. The current study describes a numerical method for solving the nonlinear Fokker-Planck partial differential equation. The solution is demonstrated to converge to the one generated from the implied volatility surface by comparing call option prices.
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Published on 23/10/24
Submitted on 23/10/24
Volume Advances in Numerical Methods for Solution Of PDEs, 2024
DOI: 10.23967/eccomas.2024.030
Licence: CC BY-NC-SA license
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