In this paper, we study the impact of the parameters involved in Heston model by means of Uncertainty Quantification. The Stochastic Collocation Method already used for example in computational fluid dynamics, has been applied throughout this work in order to compute the propagation of the uncertainty from the parameters of the model to the output. The well-known Heston model is considered and involved parameters in the Feller condition are taken as uncertain due to their important influence on the output. Numerical results where the Feller condition is satisfied or not are shown as well as a numerical example with real market data.

Additional Metadata
Keywords Heston model, Implied volatility, Stochastic Collocation, Uncertainty quantification
Persistent URL dx.doi.org/10.1186/s13362-018-0047-2
Journal Journal of Mathematics in Industry
Citation
Suárez-Taboada, M, Witteveen, J.A.S, Grzelak, L.A, & Oosterlee, C.W. (2018). Uncertainty quantification and Heston model. Journal of Mathematics in Industry, 8(1). doi:10.1186/s13362-018-0047-2