The Excel Derivatives Periscope



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