Efficient second order weak schemes for stochastic volatility models, Seminar on Stochastic Analysis.

Summary Stochastic volatility models can be seen as a particular family of two-dimensional stochastic differential equations (SDE) in which the volatility process follows an autonomous one-dimensional SDE. We take advantage of this structure to propose an efficient discretization scheme with order two of weak convergence. We prove that the order two holds for the asset price and not only for the log-asset as usually found in the literature. Numerical experiments confirm our theoretical result and we show the superiority of our scheme compared to the Euler scheme, with or without Romberg extrapolation.