The order barrier for the $L^1$-approximation of the log-Heston SDE at a single point

Abstract

We study the $L^1$-approximation of the log-Heston SDE at the terminal time point by arbitrary methods that use an equidistant discretization of the driving Brownian motion. We show that such methods can achieve at most order $ \min \{ \nu, \tfrac{1}{2} \}$, where $\nu$ is the Feller index of the underlying CIR process. As a consequence Euler-type schemes are optimal for $\nu \geq 1$, since they have convergence order $\tfrac{1}{2}-\epsilon$ for $\epsilon >0$ arbitrarily small in this regime.