A type of stochastic volatility model developed by associate finance professor Steven Heston in 1993 for analyzing bond and currency options. The Heston model is a closed-form solution for pricing options that seeks to overcome the shortcomings in the Black-Scholes option pricing model related to ...
So, I'm in need of some tips regarding a small project I'm doing. My goal is an implementation of a Fast Fourier Transform algorithm (FFT) which can be applied to the pricing of options. First ...
I am currently working on comparing different models for modelling the volatility and then pricing vanilla options (I use option prices on real stocks in order to calibrate my models and then I ...
What is the formula for the vanilla option (Call/Put) price in the Heston model? I only found the bi-variate system of stochastic differential equations of Heston model but no expression for the ...
Why do we model it as sqrt root of v(t)? Is that because we don't want the volatility to go negative? If this is the case, can we model it as square of v(t)?
When applying the Heston model to generate the sample volatility surface, some of the volatility value will be negative. I am just wondering what do practioners normally do with these negative value. ...
So I have been trying to implement a simple Heston calibration using crude MC with 10k scenarios and 1000 time steps and the best I could get is 3x of the observed implied volatility. I suspect it ...