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Boundary conditions for stoch Vol PDE
Posted: February 19th, 2006, 8:36 pm
by sam
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,
Boundary conditions for stoch Vol PDE
Posted: February 20th, 2006, 9:30 am
by Cuchulainn
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.
Boundary conditions for stoch Vol PDE
Posted: February 20th, 2006, 1:17 pm
by sam
Excellent... many thanks