The Heston Model (Part I)
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In this video we will introduce the Heston model which is one of the most used stochastic volatility model.
It assumes that the variance is stochastic, it is correlated with the asset price and follows a mean-reverting Cox Ingersoll Ross (CIR) process.
0:00 Introduction
0:22 The Black-Scholes Model and its Limits
0:31 The Volatility Changes with Time
1:02 The Volatility Clusters
1:14 The Volatility Mean Reverts
1:36 Equities and Volatility are Negatively Correlated in General
2:15 The Heston Model
2:52 The Variance Follow a Mean-Reverting Process
4:15 Spot / Volatility Correlation
4:35 The Heston Model Parameters
7:11 Calibration to Historical Distribution
7:50 To be Continued
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Пікірлер: 7
How do you plot the distribution the distribution of stock returns implied by the parameters of the Heston model ??? Thanks in advance for the answer p.s. your videos are awesome
@quantnext4773
Жыл бұрын
Thank you very much for your support! I obtained the density of the stock price implied by the Heston model from European call options priced with the Heston model (with "real" probability parameters) using the Breeden-Litzenberg formula which derives the underlying return distribution from option prices. Another way to obtain the density of the stock price implied by the Heston model could be by using its characteristic function (we don't know the density but we know the characteristic function with the Heston model) and we recover the density function the Fourier inversion theorem. I will talk about it in future videos.
@riccardo582
Жыл бұрын
Thanks
Why is the stock more leveraged when return is down?
@quantnext4773
2 ай бұрын
A company is more leveraged when its stocks are going down. The debt-to-equity ratio, calculated by dividing a company's total liabilities by its shareholder equity will typically increase when stocks are lower all other things equal.
Python Code is missing.
@quantnext4773
3 ай бұрын
Hello, If you are interested to go more in depth, we propose one full course dedicated to the Heston model including applications and tutorials in Python: quant-next.com/product/the-heston-model-for-option-pricing/