ScholarLens Back to search
2013•New Trends in Mathematical ScienceOpen access

Pricing Power Options within the Heston Framework

Siti Nur Iqmal Ibrahim, John G. O’Hara, Nick Constantinou

Open full text 0 citations

Abstract

Numerous studies have presented evidence that certain financial assets may exhibit stochastic volatility or jumps, which cannot be captured within the Black-Scholes environment.This work investigates the valuation of power options when the variance follows the Heston model of stochastic volatility.A closed form representation of the characteristic function of the process is derived from the partial differential equation (PDE) of the replicating portfolio.The characteristic function is essential for the computation of the European power option prices via the Fast Fourier Transform (FFT) technique.Numerical results are presented.

Open-access reader

About this research paper

What this paper is about

Numerous studies have presented evidence that certain financial assets may exhibit stochastic volatility or jumps, which cannot be captured within the Black-Scholes environment.This work investigates the valuation of power options when the variance follows the Heston model of stochastic volatility.A closed form representation of the characteristic function of the process is derived from the partial differential equation (PDE) of the replicating portfolio.The characteristic function is essential for the computation of the European power option prices via the Fast Fourier Transform (FFT) technique.Numerical results are presented.

Why it matters

A significance statement is not available in the OpenAlex record.

Key contribution

A contribution statement is not available in the OpenAlex record.

Method / approach

Method details are not available in the OpenAlex metadata.

Main findings

Findings are not separately available in the OpenAlex metadata.

Limitations

Limitations are not available in the OpenAlex metadata.

Applications

Application details are not available in the OpenAlex metadata.

Available abstract

Numerous studies have presented evidence that certain financial assets may exhibit stochastic volatility or jumps, which cannot be captured within the Black-Scholes environment.This work investigates the valuation of power options when the variance follows the Heston model of stochastic volatility.A closed form representation of the characteristic function of the process is derived from the partial differential equation (PDE) of the replicating portfolio.The characteristic function is essential for the computation of the European power option prices via the Fast Fourier Transform (FFT) technique.Numerical results are presented.

Key concepts: Heston model, Economics, Power (physics), Econometrics, Stochastic volatility, Thermodynamics, Physics, Volatility (finance)

Related papers

Related paper 1Related paper 2Related paper 3
Back to paper searchBrowse research topicsOriginal source
Pricing Power Options within the Heston Framework — Research Paper | ScholarLens