Reduced-Order modeling for Heston stochastic volatility model

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Kozpinar S., UZUNCA M., KARASÖZEN B.

HACETTEPE JOURNAL OF MATHEMATICS AND STATISTICS, cilt.53, sa.6, ss.1515-1528, 2024 (SCI-Expanded, Scopus, TRDizin) identifier identifier identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 53 Sayı: 6
  • Basım Tarihi: 2024
  • Doi Numarası: 10.15672/hujms.1066143
  • Dergi Adı: HACETTEPE JOURNAL OF MATHEMATICS AND STATISTICS
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Scopus, zbMATH, TR DİZİN (ULAKBİM)
  • Sayfa Sayıları: ss.1515-1528
  • Orta Doğu Teknik Üniversitesi Adresli: Evet

Özet

In this paper, we compare the intrusive proper orthogonal decomposition (POD) with Galerkin projection and the data-driven dynamic mode decomposition (DMD), for Heston's option pricing model. The full order model is obtained by discontinuous Galerkin discretization in space and backward Euler in time. Numerical results for butterfly spread, European and digital call options reveal that in general DMD requires more modes than the POD modes for the same level of accuracy. However, the speed-up factors are much higher for DMD than POD due to the non-intrusive nature of the DMD.