Deriscope ## The Excel Derivatives Periscope

##### Coverage

Heston_Model

*Heston Model* is a child type of Model[Spot Price] that represents the Heston volatility model (1993) whereby the price S of an underlying asset is modelled as a two-factor diffusion process that follows the SDE:

*dS = μSdt + σSdw*

where *w* is a Wiener process, *μ* is a constant determined by the asset's rate of return and *σ* is the asset's stochastic volatility, the square of which *χ := σ²* follows the SDE:

*dχ = κ(θ-χ)dt + ξσdω*

where *ω* is a Wiener process having correlation *ρ* with *w* and *κ,θ,ξ* are constants. Web reference available here

One usually enforces the Feller condition *2κθ > ξ²* that results in the process *χ* being strictly positive.