The following equation is used by Heston (1993, "A Closed Form Solution for Options with...
50.1K
Verified Solution
Link Copied!
Question
Accounting
The following equation is used by Heston (1993, "A Closed Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options", Review of Financial Studies) to model the instantaneous variance Vt of a risky asset: dVt=[VVt]dt+VVtdzt Here, z denotes a Brownian motion and the parameters ,V and V are constant. What is the equation satisfied by the instantaneous volatility t=Vt ? dt=[[2V22]t12t]dt+dztwith=V/2dt=2tdt+tdztwith=V/2dt=[[2V2]t12t]dt+dztwith=V/4dt=[[2V2]t12t]dt+tdztwith=V/4
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
