High-order methods for the option pricing under multivariate rough volatility models

Abstract

This paper studies the efficient methods for option pricing under multivariate rough volatility models. The characteristic functions of the asset log-price, which play important role in the option pricing under the multivariate rough volatility models, are determined by a system of parametric nonlinear fractional Riccati equations. This paper obtains the results on the existence, uniqueness and regularity of the solutions to the parametric nonlinear fractional Riccati equations, proposes a high-order scheme to solve the system and proves the high-order convergence. The option pricing problem is solved by the Fourier-cosine formula with the fast approximation of the characteristic functions. Numerical examples are carried out to confirm the theoretical results and show efficiency of the methods.