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Application Of The Hestons Stochastic Volatility Model On The Greek Stock Market
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Book Synopsis Application of the Heston's Stochastic Volatility Model on the Greek Stock Market by : Dimosthenis Karaflos
Download or read book Application of the Heston's Stochastic Volatility Model on the Greek Stock Market written by Dimosthenis Karaflos and published by . This book was released on 2015 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study focus on applying the Heston's stochastic volatility model, to the Greek stock market, by estimating the parameters from past data. Specifically, the purpose of the study is to use the stochastic model in order to calculate the parameters of this model using the Maximum Likelihood Estimation method. In addition, the model will be used in order to manifest futures values of volatility.
Book Synopsis Application of the Heston Stochastic Volatility Model for Borsa Istanbul Using Impression Matrix Norm by : Ahmet Duran
Download or read book Application of the Heston Stochastic Volatility Model for Borsa Istanbul Using Impression Matrix Norm written by Ahmet Duran and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the behavior of solutions for stochastic differential equations such as the Heston stochastic volatility model. We examine the numerical solutions using Euler-Maruyama, Milstein and stochastic Runge-Kutta methods to investigate whether there is a role of the methods for different volatility cases or not, related to the impact of cumulative errors on this application. We perform simulations for different stock market conditions by using the large data set from Borsa Istanbul-100 (BIST-100) between 04.01.2007 and 31.12.2012. We use volatilities in terms of extreme values at the overlapping case when we examine initial and long term volatilities for the application of the Heston model. We also apply unit volatility based on extreme values to approximate volatilities in our analysis. We ex-amine the advantages and limitations of the model. Moreover, we introduce 3-dimensional matrix norms. Furthermore, we define market impression matrix norm as an application to the 3 dimensional matrix norms. We can benefit from it to quantify market impression approximately by means of the numerical solutions for the stochastic differential equations. Finally, we analyze the simulation results for various parameters.
Book Synopsis Modeling Stochastic Volatility with Application to Stock Returns by : Mr.Noureddine Krichene
Download or read book Modeling Stochastic Volatility with Application to Stock Returns written by Mr.Noureddine Krichene and published by International Monetary Fund. This book was released on 2003-06-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: A stochastic volatility model where volatility was driven solely by a latent variable called news was estimated for three stock indices. A Markov chain Monte Carlo algorithm was used for estimating Bayesian parameters and filtering volatilities. Volatility persistence being close to one was consistent with both volatility clustering and mean reversion. Filtering showed highly volatile markets, reflecting frequent pertinent news. Diagnostics showed no model failure, although specification improvements were always possible. The model corroborated stylized findings in volatility modeling and has potential value for market participants in asset pricing and risk management, as well as for policymakers in the design of macroeconomic policies conducive to less volatile financial markets.
Book Synopsis The Heston Model and its Extensions in Matlab and C# by : Fabrice D. Rouah
Download or read book The Heston Model and its Extensions in Matlab and C# written by Fabrice D. Rouah and published by John Wiley & Sons. This book was released on 2013-08-01 with total page 437 pages. Available in PDF, EPUB and Kindle. Book excerpt: Tap into the power of the most popular stochastic volatility model for pricing equity derivatives Since its introduction in 1993, the Heston model has become a popular model for pricing equity derivatives, and the most popular stochastic volatility model in financial engineering. This vital resource provides a thorough derivation of the original model, and includes the most important extensions and refinements that have allowed the model to produce option prices that are more accurate and volatility surfaces that better reflect market conditions. The book's material is drawn from research papers and many of the models covered and the computer codes are unavailable from other sources. The book is light on theory and instead highlights the implementation of the models. All of the models found here have been coded in Matlab and C#. This reliable resource offers an understanding of how the original model was derived from Ricatti equations, and shows how to implement implied and local volatility, Fourier methods applied to the model, numerical integration schemes, parameter estimation, simulation schemes, American options, the Heston model with time-dependent parameters, finite difference methods for the Heston PDE, the Greeks, and the double Heston model. A groundbreaking book dedicated to the exploration of the Heston model—a popular model for pricing equity derivatives Includes a companion website, which explores the Heston model and its extensions all coded in Matlab and C# Written by Fabrice Douglas Rouah a quantitative analyst who specializes in financial modeling for derivatives for pricing and risk management Engaging and informative, this is the first book to deal exclusively with the Heston Model and includes code in Matlab and C# for pricing under the model, as well as code for parameter estimation, simulation, finite difference methods, American options, and more.
Book Synopsis The Heston Stochastic Volatility Model with Piecewise Constant Parameters - Efficient Calibration and Pricing of Window Barrier Options by : Daniel Guterding
Download or read book The Heston Stochastic Volatility Model with Piecewise Constant Parameters - Efficient Calibration and Pricing of Window Barrier Options written by Daniel Guterding and published by . This book was released on 2019 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a simple and numerically efficient approach to the calibration of the Heston stochastic volatility model with piecewise constant parameters. Extending the original ansatz for the characteristic function, proposed in the seminal paper by Heston, to the case of piecewise constant parameters, we show that the resulting set of ordinary differential equations can still be integrated semi-analytically. Our numerical scheme is based on the calculation of the characteristic function using Gauss-Kronrod quadrature, additionally supplying a Black-Scholes control variate to stabilize the numerical integrals. We apply our method to the problem of calibration of the Heston model with piecewise constant parameters to the foreign exchange (FX) options market. Finally, we demonstrate cases in which window barrier option prices calculated using the Heston model with piecewise constant parameters are consistent with the market, while those calculated with a plain Heston model are not.
Book Synopsis Volatility Trading, + website by : Euan Sinclair
Download or read book Volatility Trading, + website written by Euan Sinclair and published by John Wiley & Sons. This book was released on 2008-06-23 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Volatility Trading, Sinclair offers you a quantitative model for measuring volatility in order to gain an edge in your everyday option trading endeavors. With an accessible, straightforward approach. He guides traders through the basics of option pricing, volatility measurement, hedging, money management, and trade evaluation. In addition, Sinclair explains the often-overlooked psychological aspects of trading, revealing both how behavioral psychology can create market conditions traders can take advantage of-and how it can lead them astray. Psychological biases, he asserts, are probably the drivers behind most sources of edge available to a volatility trader. Your goal, Sinclair explains, must be clearly defined and easily expressed-if you cannot explain it in one sentence, you probably aren't completely clear about what it is. The same applies to your statistical edge. If you do not know exactly what your edge is, you shouldn't trade. He shows how, in addition to the numerical evaluation of a potential trade, you should be able to identify and evaluate the reason why implied volatility is priced where it is, that is, why an edge exists. This means it is also necessary to be on top of recent news stories, sector trends, and behavioral psychology. Finally, Sinclair underscores why trades need to be sized correctly, which means that each trade is evaluated according to its projected return and risk in the overall context of your goals. As the author concludes, while we also need to pay attention to seemingly mundane things like having good execution software, a comfortable office, and getting enough sleep, it is knowledge that is the ultimate source of edge. So, all else being equal, the trader with the greater knowledge will be the more successful. This book, and its companion CD-ROM, will provide that knowledge. The CD-ROM includes spreadsheets designed to help you forecast volatility and evaluate trades together with simulation engines.
Book Synopsis An Analysis of the Heston Stochastic Volatility Model by : Ricardo Crisóstomo
Download or read book An Analysis of the Heston Stochastic Volatility Model written by Ricardo Crisóstomo and published by . This book was released on 2016 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses the implementation and calibration of the Heston Stochastic Volatility Model. We first explain how characteristic functions can be used to estimate option prices. Then we consider the implementation of the Heston model, showing that relatively simple solutions can lead to fast and accurate vanilla option prices. We also perform several calibration tests, using both local and global optimization. Our analyses show that straightforward setups deliver good calibration results. All calculations are carried out in Matlab and numerical examples are included in the paper to facilitate the understanding of mathematical concepts.
Book Synopsis Heston-Type Stochastic Volatility with a Markov Switching Regime by : Robert J. Elliott
Download or read book Heston-Type Stochastic Volatility with a Markov Switching Regime written by Robert J. Elliott and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We construct a Heston-type stochastic volatility model with a Markov switching regime to price a plain-vanilla stock option. A semi-analytic solution, which contains a matrix ODE is obtained and numerically calculated. Our model is flexible enough to provide a wide variety of volatility surfaces for the same volatility level but different regimes.
Book Synopsis The Α-Hypergeometric Stochastic Volatility Model by : José Da Fonseca
Download or read book The Α-Hypergeometric Stochastic Volatility Model written by José Da Fonseca and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The aim of this work is to introduce a new stochastic volatility model for equity derivatives. To overcome some of the well-known problems of the Heston model, and more generally of the affine models, we define a new specification for the dynamics of the stock and its volatility. Within this framework we develop all the key elements to perform the pricing of vanilla European options as well as of volatility derivatives. We clarify the conditions under which the stock price is a martingale and illustrate how the model can be implemented.
Book Synopsis A New Class of Discrete-Time Stochastic Volatility Model with Correlated Errors by : Sujay Mukhoti
Download or read book A New Class of Discrete-Time Stochastic Volatility Model with Correlated Errors written by Sujay Mukhoti and published by . This book was released on 2017 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an efficient stock market, the returns and their time-dependent volatility are often jointly modeled by stochastic volatility models (SVMs). Over the last few decades several SVMs have been proposed to adequately capture the defining features of the relationship between the return and its volatility. Among one of the earliest SVM, Taylor (1982) proposed a hierarchical model, where the current return is a function of the current latent volatility, which is further modeled as an auto-regressive process. In an attempt to make the SVMs more appropriate for complex realistic market behavior, a leverage parameter was introduced in the Taylor's SVM, which however led to the violation of the efficient market hypothesis (EMH, a necessary mean-zero condition for the return distribution that prevents arbitrage possibilities). Subsequently, a host of alternative SVMs had been developed and are currently in use. In this paper, we propose mean-corrections for several generalizations of Taylor's SVM that capture the complex market behavior as well as satisfy EMH. We also establish a few theoretical results to characterize the key desirable features of these models, and present comparison with other popular competitors. Furthermore, four real-life examples (Oil price, CITI bank stock price, Euro-USD rate, and S&P 500 index returns) have been used to demonstrate the performance of this new class of SVMs.
Book Synopsis Option Pricing Models and Volatility Using Excel-VBA by : Fabrice D. Rouah
Download or read book Option Pricing Models and Volatility Using Excel-VBA written by Fabrice D. Rouah and published by John Wiley & Sons. This book was released on 2012-06-15 with total page 456 pages. Available in PDF, EPUB and Kindle. Book excerpt: This comprehensive guide offers traders, quants, and students the tools and techniques for using advanced models for pricing options. The accompanying website includes data files, such as options prices, stock prices, or index prices, as well as all of the codes needed to use the option and volatility models described in the book. Praise for Option Pricing Models & Volatility Using Excel-VBA "Excel is already a great pedagogical tool for teaching option valuation and risk management. But the VBA routines in this book elevate Excel to an industrial-strength financial engineering toolbox. I have no doubt that it will become hugely successful as a reference for option traders and risk managers." —Peter Christoffersen, Associate Professor of Finance, Desautels Faculty of Management, McGill University "This book is filled with methodology and techniques on how to implement option pricing and volatility models in VBA. The book takes an in-depth look into how to implement the Heston and Heston and Nandi models and includes an entire chapter on parameter estimation, but this is just the tip of the iceberg. Everyone interested in derivatives should have this book in their personal library." —Espen Gaarder Haug, option trader, philosopher, and author of Derivatives Models on Models "I am impressed. This is an important book because it is the first book to cover the modern generation of option models, including stochastic volatility and GARCH." —Steven L. Heston, Assistant Professor of Finance, R.H. Smith School of Business, University of Maryland
Book Synopsis An Empirical Analysis of Stochastic Volatility Models by : Adrien-Paul Lambillon
Download or read book An Empirical Analysis of Stochastic Volatility Models written by Adrien-Paul Lambillon and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The aim of this paper is to explain and apply the stochastic volatility models of Heston and GARCH to model the S&P 500 index volatility. The maximum likelihood estimate of the CIR process in the volatility equation of the Heston model and GARCH(1,1) with different underlying distributions are compared. It is shown that the model with strongest mean reversion, the CIR model, is the best volatility estimation for the overall period. For periods of volatility clustering, however, GARCH models capture the behaviour more accurately.
Author :Antoine Petrus Cornelius van der Ploeg Publisher :Rozenberg Publishers ISBN 13 :9051705778 Total Pages :358 pages Book Rating :4.0/5 (517 download)
Book Synopsis Stochastic volatility and the pricing of financial derivatives by : Antoine Petrus Cornelius van der Ploeg
Download or read book Stochastic volatility and the pricing of financial derivatives written by Antoine Petrus Cornelius van der Ploeg and published by Rozenberg Publishers. This book was released on 2006 with total page 358 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Pricing and Risk Management with Stochastic Volatility Using Importance Sampling by : Przemyslaw Stan Stilger
Download or read book Pricing and Risk Management with Stochastic Volatility Using Importance Sampling written by Przemyslaw Stan Stilger and published by . This book was released on 2014 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract In this paper, we apply importance sampling to Heston's stochastic volatility model and Bates's stochastic volatility model with jumps. We propose an effective numerical scheme that dramatically improves the speed of importance sampling. We show how the Greeks can be computed using the Likelihood Ratio Method based on characteristic function, and how combining it with importance sampling leads to a significant variance reduction for the Greeks. All results are illustrated using European and barrier options.
Book Synopsis An Analisys of the Heston Stochastic Volatility Model by : Ricardo Crisóstomo
Download or read book An Analisys of the Heston Stochastic Volatility Model written by Ricardo Crisóstomo and published by . This book was released on 2014 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Shape and Term Structure of the Index Option Smirk by : Peter Christoffersen
Download or read book The Shape and Term Structure of the Index Option Smirk written by Peter Christoffersen and published by . This book was released on 2009 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: State-of-the-art stochastic volatility models generate a quot;volatility smirkquot; that explains why out-of-the-money index puts have high prices relative to the Black-Scholes benchmark. These models also adequately explain how the volatility smirk moves up and down in response to changes in risk. However, the data indicate that the slope and the level of the smirk fluctuate largely independently. While single-factor stochastic volatility models can capture the slope of the smile, they cannot explain such largely independent fluctuations in its level and slope over time. We propose to model these movements using a two-factor stochastic volatility model. Because the factors have distinct correlations with market returns, and because the weights of the factors vary over time, the model generates stochastic correlation between volatility and stock returns. Besides providing more flexible modeling of the time variation in the smirk, the model also provides more flexible modeling of the volatility term structure. Our empirical results indicate that the model improves on the benchmark Heston model by 24% in-sample and 23% out-of-sample. The better fit results from improvements in the modeling of the term structure dimension as well as the moneyness dimension.
Book Synopsis A Stochastic Volatility Model with GH Skew Student's T-distribution by :
Download or read book A Stochastic Volatility Model with GH Skew Student's T-distribution written by and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
