A hybrid tree/finite-difference approach for Heston-Hull-White type models

TL;DR

This paper introduces a hybrid tree-finite difference method for pricing options under Heston-Hull-White models, offering improved efficiency and accuracy, along with a new Monte Carlo simulation scheme, validated by numerical experiments.

Contribution

The paper presents a novel hybrid tree-finite difference approach for Heston-Hull-White models, enhancing computational efficiency and accuracy over existing methods.

Findings

Method achieves high accuracy in European and American option pricing.

Proposed scheme improves computational efficiency.

Numerical results confirm reliability and effectiveness.

Abstract

We study a hybrid tree-finite difference method which permits to obtain efficient and accurate European and American option prices in the Heston Hull-White and Heston Hull-White2d models. Moreover, as a by-product, we provide a new simulation scheme to be used for Monte Carlo evaluations. Numerical results show the reliability and the efficiency of the proposed methods