This article proposes a method of analyzing and modeling the real world dynamics of equity put/call option implied volatilities using the risk-neutral Heston model with specific parameter restrictions.
In our modeling approach, we construct a stable and accurate method for calibrating the Heston model to historic market data. In this way, the risk-neutral Heston model is embedded in a real world scenario generator and can be used to generate implied volatility structures, evaluate option investment strategies or to construct hedging strategies. The proposed methodology results in a stable valu-ation of embedded options, which is in practice preferred by, among others, insurance companies and pension funds.
Related Insights
-
02 October 2025Webinar recording: Investing in private assets through a climate change lensWatch out webinar to learn about the unique climate-related challenges of private assets across physical, transition and market pricing risks and opportunities.
-
29 September 2025Taking Strategic Asset Allocation into the Next Dimension with SBMLExplore how AI is revolutionizing insurance strategic asset allocation, driving efficiency, enhancing client satisfaction, and boosting profitability.
-
24 September 2025PRESS RELEASE: Insurers ready to take on more risk as capital to invest rises, report saysPrivate markets will be among the main beneficiaries with private debt, private equity and real estate the key sectors
-
23 September 2025PRESS RELEASE: Ortec Finance powers growth ambition with senior hireOrtec Finance appoints John O’Driscoll to lead OPAL, delivering intelligent advice technology to advisers worldwide.
-
17 September 2025Finity and Ortec Finance partner to offer advanced climate scenario analysis for investment portfoliosLearn how Finity will utilize our Ortec Finance Climate Scenarios to help Australian financial institutions manage climate risks
-
16 September 2025The enduring value of decision-based attribution for asset owners managing multi-asset portfoliosLearn how our decision-based attribution’s top-down approach continues to empower asset owners to navigate the ever-evolving investment landscape.
-
16 September 2025The Case for Sophisticated ALM Models in Life Insurance Investment StrategyAPAC life insurers face rising ALM complexity. Advanced models like SBML boost solvency, capital efficiency & innovation—spreadsheets fall short.
-
11 September 2025PRESS RELEASE: Insurers expect improved investment opportunities this yearInsurers expect stronger investment opportunities in 2025. Global study reveals key strategy shifts, see where risks are rising and where to focus next.
-
08 September 2025Beyond the portfolioDiscover how goals-based investment planning boosts trust and AuM -up to 15%- with dynamic insights and scalable client engagement.