Monte Carlo methods for the Heston model

Event Details
  • Date/Time:
    • Friday March 6, 2009
      10:00 am - 11:00 am
  • Location: IC 211
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Contact

Harry Sharp
Quantitative & Computational Finance Program (QCF)
Contact Harry Sharp

Summaries

Summary Sentence: A discussion of the Heston stochastic volatility model

Full Summary: We derive an explicit representation of the transitions of the Heston stochastic volatility model and use it for fast and accurate simulation of the model.

We derive an explicit representation of the transitions of the Heston stochastic volatility model and use it for fast and accurate simulation of the model. Of particular interest is the integral of the variance process over an interval, conditional on the level of the variance at the endpoints. We give an explicit representation of this quantity in terms of infinite sums and mixtures of gamma random variables. The increments of the variance process are themselves mixtures of gamma random variables. The representation of the integrated conditional variance applies the Pitman-Yor decomposition of Bessel bridges. We combine this representation with the Broadie-Kaya exact simulation method and use it to circumvent the most time-consuming step in that method.

Additional Information

In Campus Calendar
No
Groups

School of Industrial and Systems Engineering (ISYE)

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Categories
Seminar/Lecture/Colloquium
Keywords
monte carlo, stochastics
Status
  • Created By: Harry Sharp
  • Workflow Status: Published
  • Created On: Dec 3, 2009 - 5:02am
  • Last Updated: Oct 7, 2016 - 9:47pm