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GoldDigga
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Posts: 67
Joined: June 7th, 2004, 9:53 pm

Heston with time dependent parameters

August 13th, 2013, 8:33 pm

Hi,I've followed the iterative approach described in S. Mikhailov's paper "Heston?s Stochastic Volatility Model Implementation, Calibration and Some Extensions" for the time dependent case with piecewise constant parameters.In order to test my code I thought that by setting the parameters constant over time I should match prices given by the standard Heston model (constant parameters). However it's not the case with my implementation. Did I misunderstand something or it's really my code that is wrong?I've desperately looked for a similar open source implementation in order to do a comparison but could not find anything... Quantlib seems to be using a parameter averaging method. If anybody is aware of some freely available code could they please let me know?Cheers
 
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Peniel
Posts: 59
Joined: April 8th, 2006, 9:46 am

Heston with time dependent parameters

August 14th, 2013, 8:21 am

Unfortunately, there is something wrong in your code.There is a simple test you can do, set the volOfvol = 0, then the variance is deterministic and you should get the same results as the standard BS formula (for both your constant/time-dependent Heston implementations)
 
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GoldDigga
Topic Author
Posts: 67
Joined: June 7th, 2004, 9:53 pm

Heston with time dependent parameters

August 14th, 2013, 1:02 pm

Thanks, I found my mistake thanks to your tip actually.
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