Author : Yuan Yang
Publisher :
ISBN 13 :
Total Pages : 120 pages
Book Rating : 4.:/5 (846 download)
Book Synopsis Valuing a European Option with the Heston Model by : Yuan Yang
Download or read book Valuing a European Option with the Heston Model written by Yuan Yang and published by . This book was released on 2013 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: "In spite of the Black-Scholes (BS) equation being widely used to price options, this method is based on a hypothesis that the volatility of the underlying is a constant. A number of scholars began to improve the formula, and they proposed to employ stochastic volatility models to predict the behavior of the volatility. One of the results of the improvement is stochastic volatility models, which replaces the fixed volatility by a stochastic volatility process. The purpose of this dissertation is to adopt one of the famous stochastic volatility models, Heston Model (1993), to price European call options. Put option values can easily obtained by call-put parity if it is needed. We derive a model based on the Heston model. Then, we compare it with Black-Scholes equation, and make a sensitivity analysis for its parameters."--Abstract.