Geometrical Considerations on Heston's Market Model
We 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.
|Date of creation:||10 Mar 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- 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.
- 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.
- repec:dgr:uvatin:20060046 is not listed on IDEAS
- Vladimir Piterbarg, 2005. "Stochastic Volatility Model with Time-dependent Skew," Applied Mathematical Finance, Taylor & Francis Journals, vol. 12(2), pages 147-185.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:21523. See general information about how to correct material in RePEc.
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.