Unbiased estimators for the Heston model with stochastic interest rates
We combine the unbiased estimators in Rhee and Glynn (Operations Research: 63(5), 1026-1043, 2015) and the Heston model with stochastic interest rates. Specifically, we first develop a semi-exact log-Euler scheme for the Heston model with stochastic interest rates, and then, under mild assumptions, we show that the convergence rate in $L^2$ norm is $O(h)$, where $h$ is the step size. The result applies to a large class of models, such as the Heston-Hull-While model, the Heston-CIR model and the Heston-Black-Karasinski model. Numerical experiments confirm our theoretical convergence rate.
- Pub Date:
- January 2023
- Quantitative Finance - Computational Finance;
- Mathematics - Numerical Analysis;
- Mathematics - Statistics Theory;