Derives the Partial Differential Equation (PDE) that the price of a derivative/option satisfies under the Heston Stochastic Volatility. This is the so called pricing PDE or valuation PDE. Also explains the market price of risk (the lambda term) that is integral to the derivation of the Heston PDE. Content by timeline:
00:00 - Introduction and motivation behind Heston Stochastic Volatility
04:06 - Derivation of the Heston PDE
15:03 - Informal derivation of the market price of volatility risk
18:16 - Derivation of the market price of volatility risk
Негізгі бет Derivation of Heston Stochastic Volatility Model PDE
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