ADI schemes with Ikonen-Toivanen splitting for pricing American put options in the Heston model

Abstract

The numerical valuation of American put options under the Heston stochastic volatility model is considered. We investigate in this paper the potential of combining the recent splitting approach of Ikonen & Toivanen (2004, 2009) with Alternating Direction Implicit schemes to obtain more efficient numerical methods. © 2010 American Institute of Physics.