2
$\begingroup$

I am performing option pricing using Heston model and Euler discretization. I'm getting the following result:

1000    6.81982     
500     6.85281  
250     6.81557     
200     6.78875     
150     6.79469     
100     6.77717     
50      6.72955 
30      6.68981     
10      6.42615 
10      6.41056

Where the first column denotes the number of discretization intervals, and the second one is an option price. Number of simulation paths is equal to 100000 and true option price is 6.8061 as in the following link:

https://www.quantstart.com/articles/Heston-Stochastic-Volatility-Model-with-Euler-Discretisation-in-C

What can be the reason for the decreasing option price when the number of discretization intervals is decreasing as well?

|improve this question
$\endgroup$
  • $\begingroup$ possibly just error... have you checked the standard errors? Heston with Euler is notoriously unstable. See ssrn.com/abstract=1617187 and references therein $\endgroup$ – Mark Joshi Mar 7 '16 at 1:58

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.