The Heston model stands out from the class of stochastic volatility (SV) models mainly for two reasons. Firstly, the process for the volatility is non-negative and mean-reverting, which is what we observe in the markets. Secondly, there exists a fast and easily implemented semi-analytical sol...
This allows us to accurately approximate the distribution of the discrete variance in the Heston model. As a result, we can apply semianalytical Fourier transform methods developed by Sepp for pricing shorter-term options on the realized variance. 展开 年份: 2013 ...
Starting with nonsmooth initial data u0 ∈ H , we take advantage of smoothing properties of the parabolic semigroup e−tA : H → H , t ∈ R+, generated by the Heston model, to derive the smoothness of the solution u(t) = e−tAu0 for all t > 0. The existence and uniqueness ...
Secondly, there exists a fast and easily implemented semi-analytical solution for European options. In this article we adapt the original work of Heston (1993) to a foreign exchange (FX) setting. We discuss the computational aspects of using the semi-analytical formulas, performing Monte Carlo ...