Stochastic vol model

[Lun]

There are several stochastic vol models, what I'm studying is Heston. What the paper (written by Heston) studies is European options, but nowadays the popular use of stochastic vol models is to price exotic options, where can I find more information ? Say, an example to price an exotic option with a stochastic vol model. I mean, I don't know where I can get related resources (application of stochastic vol models on options other than European options)

 

[Sarang]

"Option Pricing and Portfolio Optimization: Modern Methods of Financial Mathematics" by Ralf and Elke Korn has good amount of information on pricing exotics.

Had used the Schobucher framework in a previous assignment. Attached.

 

[Lun]

Anyone has any more idea on this topic ? Thanks !

 

[Yves]

Exotic Options with Heston Model

Lun,

I wrote a paper which contains an application of the Heston model to American option pricing with Monte Carlo simulation (and also stochastic interest rates).

You find it on the Web site American Options with Heston Model ("Stochastic Volatility and Stochastic Interest Rates").

In addition there is also a paper available which analyzes Heston (1993) in more detail and provides a full set of Python scripts (calles "Calibrating Heston's Stochastic Volatility Model").

Moreover, if you like you can try out our on demand Derivatives Analytics suite with which you can use Heston (1993) for almost any (equity) derivative instrument.

Yves