A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options

Steven L. Heston · 1993 · Review of Financial Studies

AdvancedLFTTheory

The workhorse stochastic-volatility model with semi-closed-form prices. Explains skew through spot-vol correlation.

At a glance

Level: Advanced: Stochastic control, point processes, heavy econometrics or deep learning
Horizon: LFT
Data needed: None to read it; no dataset required Set what data you have
Themes: Options & volatility
Assets: Options
Market: Global

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@article{heston1993closed, author = {Heston, Steven L.}, title = {{A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options}}, journal = {Review of Financial Studies}, year = {1993}, doi = {10.1093/rfs/6.2.327} }