Efficient Simulation of the Heston Stochastic Volatility Model
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Date: 01-18-2007
Start Time:
5:30pm
End Time: 7:00pm
Speaker: Leif Andersen, Banc Of America Securities
Location: Dahesh Auditorium, 580 Madison Ave (Madison & 56th street)
ABSTRACT
Stochastic volatility models are increasingly important in practical derivatives pricing applications, yet relatively little work has been undertaken in the development of practicalMonte Carlo simulation methods for this class of models. This paper considers several newalgorithms for time-discretization and Monte Carlo simulation of Heston-type stochastic volatility models. The algorithms are based on a careful analysis of the properties of affine stochastic volatility diffusions, and are straight forward and quick to implement and execute.Tests on realistic model parameterizations reveal that the computational efficiency and robustness of the simulation schemes proposed in the paper compare very favorably to existing methods
BIO
Leif holds MSc's in Electrical and Mechanical Engineering for Technical University of Denmark; an MBA from University of California at Berkeley;and a PhD in Finance from Aarhus Business School. He is currently head of the rates and credit quantitative research group at Banc ofAmerica Securities. Before that he spent 9 years at General Re Financial Products, working in a variety of financial markets.