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- Type of Document: M.Sc. Thesis
- Language: Farsi
- Document No: 45620 (02)
- University: Sharif University of Technology
- Department: Mathematics
- Advisor(s): Zohuri Zangeneh, Bijan; Zamani, Shiva
- Abstract:
- By means of classical Itô calculus, we decompose option prices as the sum of the classical Black–Scholes formula, with volatility parameter equal to the root-meansquare future average volatility, plus a term due to correlation and a term due to the volatility of the volatility. This decomposition allows us to develop first- and second-order Approximation formulas for option prices and implied volatilities in the Heston volatility framework, as well as to study their accuracy for short maturities.Numerical examples are given
- Keywords:
- Ito Calculus ; Stochastic Volatility Model ; Heston Model