Regression model
Stochastic Volatility Model (Heston)
The stochastic volatility model is a continuous-time option-pricing and risk framework in which volatility follows its own random process rather than staying constant. The Heston model, introduced by Steven Heston in 1993, gives the variance a mean-reverting square-root (CIR) dynamic and yields a closed-form option price; it is the continuous-time counterpart of GARCH.
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Sources
- Heston, S. L. (1993). A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options. Review of Financial Studies, 6(2), 327-343. DOI: 10.1093/rfs/6.2.327 ↗
- Gatheral, J. (2006). The Volatility Surface: A Practitioner's Guide. Wiley. ISBN: 978-0471792512
Related methods
Referenced by
Bayesian GARCH modelBinomial Option PricingBlack-Scholes ModelFactor Risk ModelKalman Filter (Finance)Nonlinear ARCH modelNonlinear EGARCH modelRealized VolatilityRobust ARCH modelRobust GARCH modelTime-varying parameter AR modelTime-varying parameter ARCH modelTime-varying parameter DCC-GARCH modelTime-varying parameter EGARCH modelTime-varying parameter GARCH model