Steven L. Heston
= Steven L. Heston
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<Steven L. Heston> introduced the <Heston model>, a <stochastic volatility model> in which the asset price and its instantaneous <variance> evolve together. The <variance> follows a square-root diffusion, while correlation between the price and variance innovations allows asymmetric option-price patterns.<A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options by Steven L. Heston>[1993, abstract and model specification]{ref}
The model is useful because richer uncertainty does not remove all analytical structure. An affine expression for the <characteristic function> of the log price allows <Fourier inversion> to recover the probabilities used in <European option> valuation. The resulting pricing formula includes numerical integration; “closed-form” here does not mean that every price is an elementary expression without a numerical step.<A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options by Steven L. Heston>[Characteristic-function construction and the European option pricing formula]{ref}
Institutional profile: https://www.rhsmith.umd.edu/directory/steve-heston
\Image[https://www.rhsmith.umd.edu/sites/default/files/people/headshots/HestonSteve.jpg]
{title=Portrait of <Steven L. Heston>}
{description=Portrait selected from the matching University of Maryland institutional profile.}
{source=https://www.rhsmith.umd.edu/directory/steve-heston}
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