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The Heston Model - Stochastic Volatility and Approximation

Karlsson, Patrik (2009)
Department of Economics
Abstract
The crude assumption on log normal stock returns and constant volatility in
the Black-Scholes model is a big constraint which constructs smile and skew
inconsistent prices. The Heston model and its suggested approximation built
on stochastic volatility are introduced and faced against the Black-Scholes
model in hope of producing option prices where the smile and skew are taken
into account.. As one will observe later on is that numerical calculation and
approximation of the Heston model will provide us with more accurate
calculations.
Please use this url to cite or link to this publication:
author
Karlsson, Patrik
supervisor
organization
year
type
M2 - Bachelor Degree
subject
keywords
Black-Scholes, Derivative Pricing, Heston, Monte Carlo, Volatility Smile., Economics, econometrics, economic theory, economic systems, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
language
English
id
1436827
date added to LUP
2009-06-04 00:00:00
date last changed
2010-08-03 10:52:17
@misc{1436827,
  abstract     = {{The crude assumption on log normal stock returns and constant volatility in
the Black-Scholes model is a big constraint which constructs smile and skew
inconsistent prices. The Heston model and its suggested approximation built
on stochastic volatility are introduced and faced against the Black-Scholes
model in hope of producing option prices where the smile and skew are taken
into account.. As one will observe later on is that numerical calculation and
approximation of the Heston model will provide us with more accurate
calculations.}},
  author       = {{Karlsson, Patrik}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Heston Model - Stochastic Volatility and Approximation}},
  year         = {{2009}},
}