Geometrical Considerations on Heston's Market Model
AbstractWe propose to discuss a new technique to derive an good approximated solution for the price of a European call and put options, in a market model with stochastic volatility. In particular, the model that we have considered is the Heston's model. This allows arbitrary correlation between volatility and spot asset returns. We are able to write the price of European call and put, in the same form in which one can see in the Black-Scholes model. The solution technique is based upon coordinate transformations that reduce the initial PDE in a straightforward one-dimensional heat equation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21523.
Date of creation: 10 Mar 2010
Date of revision:
Quantitative methods in Finance;
Find related papers by JEL classification:
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- C0 - Mathematical and Quantitative Methods - - General
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
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Tinbergen Institute Discussion Papers
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