A Comparative Analysis of the Black-Scholes- Merton Model and the Heston Stochastic Volatility Model
This paper compares the performance of two different option pricing models, namely, the Black-Scholes-Merton (B-S-M) model and the Heston Stochastic Volatility (H-S-V) model. It is known that the most popular B-S-M Model makes the assumption that volatility of an asset is constant while the H-S-V model considers it to be random. We examine the behavior of both B-S-M and H-S-V formulae with the change of different affecting factors by graphical representations and hence assimilate them. We also compare the behavior of some of the Greeks computed by both of these models with changing stock prices and hence constitute 3D plots of these Greeks. All the numerical computations and graphical illustrations are generated by a powerful Computer Algebra System (CAS), MATLAB.
GANIT J. Bangladesh Math. Soc.Vol. 39 (2019) 127-140
The copyright of GANIT: Journal of Bangladesh Mathematical Society is reserved by Bangladesh Mathematical Society (web: https://bdmathsociety.org/)