The Heston model describes the evolution of the volatility of an underlying asset by a system of stochastic differential equations including a Cox--Ingersoll--Ross (CIR) process. Since the CIR process cannot be simulated by a naive Euler--Maruyama implementation due to the properties of the stochastic differential equation, other approximations have to be taken into account. In this project we discuss the mathematical problem and consider several methods to approximate the Heston model. We will implement the different discretizations and compare their convergence properties.
Obs! För GU-studenter räknas projektet som ett projekt i Matematisk Statistik (MSG900/MSG910).
Förkunskaper: basic knowledge in stochastic differential equations and a scientific programming language such as for example matlab or R
Examinator Maria Roginskaya
Institution Matematiska vetenskaper