September 18th, 2017, 9:36 pm
Yes I agree, if you think v0=0 is more elegant, then you are referring to the grid truncation boundary. I now understand why you asked "why are we truncating the grid". As outrun points out, v0 here is the initial variance level, apologies if that wasn't crystal clear. So v0 the initial level, vL the long term level where it mean reverts to, etc... Again, the plots I posted before depict a cross section of the error surface at v=v0, which is where we want the pricing for.
Last edited by
Billy7 on September 18th, 2017, 10:29 pm, edited 1 time in total.