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Journal Articles SIAM Journal on Financial Mathematics Year : 2023

On the discrete-time simulation of the rough Heston model

Abstract

We study Euler-type discrete-time schemes for the rough Heston model, which can be described by a stochastic Volterra equation (with non-Lipschtiz coefficient functions), or by an equivalent integrated variance formulation. Using weak convergence techniques, we prove that the limits of the discrete-time schemes are solution to some modified Volterra equations. Such modified equations are then proved to share the same unique solution as the initial equations, which implies the convergence of the discrete-time schemes. Numerical examples are also provided in order to evaluate different derivative options prices under the rough Heston model.

Dates and versions

hal-03478994 , version 1 (14-12-2021)

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Alexandre Richard, Xiaolu Tan, Fan Yang. On the discrete-time simulation of the rough Heston model. SIAM Journal on Financial Mathematics, 2023, 14 (1), pp.223-249. ⟨10.1137/21M1443807⟩. ⟨hal-03478994⟩
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