Parameter estimation of a bivariate diffusion process : the Heston model

Master Thesis

2011

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http://hdl.handle.net/11427/11774
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thesis_sci_2011_nomoyi_s.pdf (1.48 MB)
Authors
Nomoyi, Siyabulela
Supervisors
Varughese, Melvin
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University of Cape Town

Department
Department of Statistical Sciences
Faculty
Faculty of Science
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Abstract
The main objective of the research is to estimate the parameters on the Heston (1993) model, which models the movement of asset prices assuming that the asset price volatility is stochastic. The paper concentrates on estimating these parameters by approximating the transitional probabilities of the diffusion process with a saddlepoint distribution. By solving a system of ordinary differential equations that are in terms of the system’s cumulants, and using these solutions to calculate the saddlepoint, the transitional probabilities of the diffusion process can be approximated.
Description

Includes abstract.


Includes bibliographical references (leaves 27-29).

Keywords
Mathematics of Finance

Reference:

Nomoyi, S. 2011. Parameter estimation of a bivariate diffusion process : the Heston model. University of Cape Town.

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