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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roger Lord & Remmert Koekkoek & Dick van Dijk, 2006.
"A Comparison of Biased Simulation Schemes for Stochastic Volatility Models,"
Tinbergen Institute Discussion Papers
06-046/4, Tinbergen Institute, revised 07 Jun 2007.
- Roger Lord & Remmert Koekkoek & Dick Van Dijk, 2010. "A comparison of biased simulation schemes for stochastic volatility models," Quantitative Finance, Taylor & Francis Journals, vol. 10(2), pages 177-194.
- Vladimir Piterbarg, 2005. "Stochastic Volatility Model with Time-dependent Skew," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(2), pages 147-185.
- Christian Kahl & Peter Jackel, 2006. "Fast strong approximation Monte Carlo schemes for stochastic volatility models," Quantitative Finance, Taylor & Francis Journals, vol. 6(6), pages 513-536.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.