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2011 Valuing Options in Heston's Stochastic Volatility Model: Another Analytical Approach
Robert Frontczak
J. Appl. Math. 2011: 1-18 (2011). DOI: 10.1155/2011/198469


We are concerned with the valuation of European options in the Heston stochastic volatility model with correlation. Based on Mellin transforms, we present new solutions for the price of European options and hedging parameters. In contrast to Fourier-based approaches, where the transformation variable is usually the log-stock price at maturity, our framework focuses on directly transforming the current stock price. Our solution has the nice feature that it requires only a single integration. We make numerical tests to compare our results with Heston's solution based on Fourier inversion and investigate the accuracy of the derived pricing formulae.


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Robert Frontczak. "Valuing Options in Heston's Stochastic Volatility Model: Another Analytical Approach." J. Appl. Math. 2011 1 - 18, 2011.


Published: 2011
First available in Project Euclid: 15 March 2012

zbMATH: 1223.91038
MathSciNet: MR2844119
Digital Object Identifier: 10.1155/2011/198469

Rights: Copyright © 2011 Hindawi


Vol.2011 • 2011
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