Option Pricer based on Heston's stochastic vol model
Governing stochastic equation for the underlying in the risk neutral space
|result of the f.d.m.|
|analytical solution (Heston)|
|analytical solution (Lipton)|
- = 0.86
- should be greater or equal two for accurate results
References and source codeThe programme which implements the finite difference method is part of my diploma thesis. Details about the theoretical background and improvements of the numerical scheme to obtain more accurate numerical results can be found there. The source code of the analytical solution based on the paper of Heston has been implemented by Gunter Winkler and is available here under the GNU General Public License. The method to find an analytical solution based on Lipton is examined in the diploma thesis by Oliver Faulhaber. There you can also download the algorithms written in Mathematica and Visual Basic.
LimitationsThe programme using the finite difference scheme is in a very early development stage and has to be considered as experimental. The results might be unreliable under certain parameter constellations.
Input parameters are always checked and are redefined if internally defined minimum or maximum bounds are exceeded.