Option pricing based on the Black-Scholes and the Heston model

Minlei Hao; Ziyuan Yin

doi:10.1117/12.2646649

23 August 2022 Option pricing based on the Black-Scholes and the Heston model

Minlei Hao, Ziyuan Yin

Proceedings Volume 12330, International Conference on Cyber Security, Artificial Intelligence, and Digital Economy (CSAIDE 2022); 123301V (2022) https://doi.org/10.1117/12.2646649
Event: International Conference on Cyber Security, Artificial Intelligence, and Digital Economy (CSAIDE 2022), 2022, Huzhou, China

Abstract

This research mainly focuses on comparing the performance of the Black-Scholes Model and the Heston Model when pricing options. In practice, the researchers used a trust-region algorithm to numerically calculate the parameters required in both models. With the parameters, the researchers used them to hedge an imaginary option attached to AAPL and used the hedging performance as a measurement. Also, percentage error was used to measure the performance of the two models. The researchers reached that the B-S model behaves better in short term and the Heston model performs better in long term. By comparing the advantages and disadvantages of these two models, we are allowed to give insightful suggestions on improving the models to give more precise results.

Citation Download Citation

Minlei Hao and Ziyuan Yin "Option pricing based on the Black-Scholes and the Heston model", Proc. SPIE 12330, International Conference on Cyber Security, Artificial Intelligence, and Digital Economy (CSAIDE 2022), 123301V (23 August 2022); https://doi.org/10.1117/12.2646649

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