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Implementing The Heston Option Pricing Model In Object-Oriented Cython, Brandon Hardin

All Graduate Plan B and other Reports, Spring 1920 to Spring 2023

The 1973 Black-Scholes model, a revolutionary option pricing formula whose price is 'relatively close to observed prices, makes an assumption that the volatility is constant and thus, deterministic. This causes some inefficiencies and patterns in the pricing of options due to the model providing evidence of the volatility smile' of the volatility. Many scholars have suggested that the volatility should be modelled by a stochastic process and the (1993) Heston Model is one of many proposed solutions to remedy this problem. The Heston Model allows for the 'smile' by defining the volatility as a stochastic process. This thesis considers a …