Strong approximation of a two-factor stochastic volatility model under local Lipschitz condition

Abstract

Abstract We establish theoretical properties of the solution to a two-variance-driven interest rate model with super-linear coefficient terms. Since this model is not tractable analytically, we construct an implementable numerical method to approximate it and prove the finite-time strong convergence theory under the local Lipschitz condition. Finally, we provide simulation examples to demonstrate the theoretical results.