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Monotonicity Of Prices In Heston Model

Author

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  • S. M. OULD ALY

    (Universite Paris-Est, Laboratoire d'Analyse et de Mathmatiques Appliques, 5, boulevard Descartes, 77454 Marne-la-Valle Cedex 2, France)

Abstract

In this article, we study the price monotonicity in the parameters of the Heston model for a contract with a convex pay-off function; in particular we consider European put options. We show that the price is increasing in the constant term in the drift of the variance process and decreasing in the coefficient of the linear term in the drift of variance process. We also show that the price is increasing in the correlation for small values of the stock and decreasing for the large values.

Suggested Citation

  • S. M. Ould Aly, 2013. "Monotonicity Of Prices In Heston Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(03), pages 1-23.
    • Handle: RePEc:wsi:ijtafx:v:16:y:2013:i:03:n:s0219024913500167
    DOI: 10.1142/S0219024913500167
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    References listed on IDEAS

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    1. Aleksandar Mijatovic & Mikhail Urusov, 2009. "On the Martingale Property of Certain Local Martingales," Papers 0905.3701, arXiv.org, revised Oct 2010.
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    Cited by:

    1. Damien Lamberton & Giulia Terenzi, 2019. "Properties of the American price function in the Heston-type models," Working Papers hal-02088487, HAL.
    2. M. Papi & L. Pontecorvi & C. Donatucci, 2017. "Weighted average price in the Heston stochastic volatility model," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 40(1), pages 351-373, November.

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