Boundary conditions for stoch Vol PDE

sam · February 19th, 2006, 8:36 pm

Hi all,Just curious... For a 2-D stochastic vol PDE (first dimension is the underlying, second the vol, e.g Heston)... do people use a set of 'typical' boundary conditions for the vol? For e.g. in 1-D BS, one can make impose a boundary condition vis the delta or the gamma... what could you use for the vol? Thanks,

Cuchulainn · February 20th, 2006, 9:30 am

QuoteOriginally posted by: samHi all,Just curious... For a 2-D stochastic vol PDE (first dimension is the underlying, second the vol, e.g Heston)... do people use a set of 'typical' boundary conditions for the vol? For e.g. in 1-D BS, one can make impose a boundary condition vis the delta or the gamma... what could you use for the vol? Thanks,HiThis might be a startBCAlso the original Heston article 1993 discusses the issue of boundary conditions. The biggest challenge is on one boundary where the PDE is first order.

sam · February 20th, 2006, 1:17 pm

Excellent... many thanks