Uncertainty quantification and Heston model

María Suárez-Taboada, Jeroen A.S. Witteveen, Lech A. Grzelak, Cornelis W. Oosterlee

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

In this paper, we study the impact of the parameters involved in Heston model by means of Uncertainty Quantification. The Stochastic Collocation Method already used for example in computational fluid dynamics, has been applied throughout this work in order to compute the propagation of the uncertainty from the parameters of the model to the output. The well-known Heston model is considered and involved parameters in the Feller condition are taken as uncertain due to their important influence on the output. Numerical results where the Feller condition is satisfied or not are shown as well as a numerical example with real market data.

Original languageEnglish
Pages (from-to)1-12
Number of pages12
JournalJournal of Mathematics in Industry
Volume8
Issue number1
DOIs
Publication statusPublished - 2018

Keywords

  • Heston model
  • Implied volatility
  • Stochastic Collocation
  • Uncertainty quantification

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