Heston Model

Stochastic Volatility Model for a Stock Price. See Ito Calculus

Links

• Introduction
• Wikipedia page

Summary

Description

• $d{S}_t=S_t\sqrt{V_t}d{W}_t$
• $d{V}_t=\lambda \left(\theta -V_t\right)dt+\lambda \nu \sqrt{V_t}d{B}_t$
• $⟨d{W}_t,d{B}_t⟩=\rho dt$

Notation

• $W_t$, $B_t$ are standard Brownian Motions
• $\lambda$, $\rho$, $\mu$, $\theta$ are constants
• $S_t$ represents the stock price
• $V_t$ represents the stock volatility