Numerical methods for solving PIDEs arising in swing option pricing under a two-factor mean-reverting model with jumps
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| Main Authors: | , , , |
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| Format: | Preprint |
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2025
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| _version_ | 1866917246655266816 |
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| author | Regragui, Mustapha Hout, Karel J. in 't Vanmaele, Michèle Benth, Fred Espen |
| author_facet | Regragui, Mustapha Hout, Karel J. in 't Vanmaele, Michèle Benth, Fred Espen |
| contents | This paper concerns the numerical valuation of swing options with discrete action times under a linear two-factor mean-reverting model with jumps. The resulting sequence of two-dimensional partial integro-differential equations (PIDEs) are convection-dominated and possess a nonlocal integral term due to the presence of jumps. Further, the initial function is nonsmooth. We propose various second-order numerical methods that can adequately handle these challenging features. The stability and convergence of these numerical methods are analysed theoretically. By ample numerical experiments, we confirm their second-order convergence behaviour. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2511_01587 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Numerical methods for solving PIDEs arising in swing option pricing under a two-factor mean-reverting model with jumps Regragui, Mustapha Hout, Karel J. in 't Vanmaele, Michèle Benth, Fred Espen Numerical Analysis Computational Finance This paper concerns the numerical valuation of swing options with discrete action times under a linear two-factor mean-reverting model with jumps. The resulting sequence of two-dimensional partial integro-differential equations (PIDEs) are convection-dominated and possess a nonlocal integral term due to the presence of jumps. Further, the initial function is nonsmooth. We propose various second-order numerical methods that can adequately handle these challenging features. The stability and convergence of these numerical methods are analysed theoretically. By ample numerical experiments, we confirm their second-order convergence behaviour. |
| title | Numerical methods for solving PIDEs arising in swing option pricing under a two-factor mean-reverting model with jumps |
| topic | Numerical Analysis Computational Finance |
| url | https://arxiv.org/abs/2511.01587 |