Theoretical and Empirical Validation of Heston Model
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arXiv
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| Main Authors: | , |
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| Format: | Preprint |
| Published: |
2024
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| _version_ | 1866913556033699840 |
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| author | Cao, Zheng Lin, Xinhao |
| author_facet | Cao, Zheng Lin, Xinhao |
| contents | This study focuses on the application of the Heston model to option pricing, employing both theoretical derivations and empirical validations. The Heston model, known for its ability to incorporate stochastic volatility, is derived and analyzed to evaluate its effectiveness in pricing options. For practical application, we utilize Monte Carlo simulations alongside market data from the Crude Oil WTI market to test the model's accuracy. Machine learning based optimization methods are also applied for the estimation of the five Heston parameters. By calibrating the model with real-world data, we assess its robustness and relevance in current financial markets, aiming to bridge the gap between theoretical finance models and their practical implementations. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2409_12453 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Theoretical and Empirical Validation of Heston Model Cao, Zheng Lin, Xinhao Computational Finance Probability 60H15 This study focuses on the application of the Heston model to option pricing, employing both theoretical derivations and empirical validations. The Heston model, known for its ability to incorporate stochastic volatility, is derived and analyzed to evaluate its effectiveness in pricing options. For practical application, we utilize Monte Carlo simulations alongside market data from the Crude Oil WTI market to test the model's accuracy. Machine learning based optimization methods are also applied for the estimation of the five Heston parameters. By calibrating the model with real-world data, we assess its robustness and relevance in current financial markets, aiming to bridge the gap between theoretical finance models and their practical implementations. |
| title | Theoretical and Empirical Validation of Heston Model |
| topic | Computational Finance Probability 60H15 |
| url | https://arxiv.org/abs/2409.12453 |