Date of Award
12-2017
Degree Type
Thesis
Degree Name
Master of Science (MS)
Department
Economics and Finance
Committee Chair(s)
Tyler Brough
Committee
Tyler Brough
Committee
Ben Blau
Committee
Ryan Whitby
Abstract
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 solution to this problem by utilizing Heston’s stochastic volatility model in conjunction with Euler's discretization scheme in a simple Monte Carlo engine.
The application of this model has been implemented in object-oriented Cython, for it provides the simplicity of Python, all the while, providing C performance.
Recommended Citation
Hardin, Brandon, "Implementing the Heston Option Pricing Model in Object-Oriented Cython" (2017). All Graduate Plan B and other Reports, Spring 1920 to Spring 2023. 1146.
https://digitalcommons.usu.edu/gradreports/1146
Included in
Finance and Financial Management Commons, Management Sciences and Quantitative Methods Commons, Portfolio and Security Analysis Commons, Risk Analysis Commons
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