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
-
15 January 2025Evaluating the pricing impacts of climate risksJoin our webinar to learn how climate change could impact asset performance, as well as the key considerations when evaluating the pricing impacts of climate risks
-
14 January 2025PRESS RELEASE: One in five US pension plans lack adverse scenario liquiditySurvey found 22% do not have enough liquidity and a further 60% said liquidity could be problematic in extreme scenarios.
-
08 January 2025Quarterly Scenario webinar – 2025, a year of muted global economic growth?Join our January 30 webinar for expert insights on the 2025 economic outlook, growth challenges, and pension strategies. Choose 10 AM or 4 PM CET. Register now!
-
06 January 2025Ready or not, here comes 2025: Wealth management gets a glow-upDiscover 2025 wealth management trends: AI, personalization, generational wealth shifts, and tech-savvy client solutions.
-
18 December 2024Climate change could erode Canadian pension fund returns by 44%Ortec Finance releases inaugural Canada pension fund climate risk report, analyzing the average portfolio allocation of the Top 30 pension funds in Canada by AUM
-
.png?w=576&hash=ACDB68A89AC45F798869837DDC9018AE)
17 December 2024Climate risk assessment – Top 30 Canadian pension fundsDiscover how climate change impacts the top 30 Canadian pension funds through an analysis of their climate risk exposure, using Ortec Finance Climate Scenarios.
-
17 December 2024Assessing the climate risk exposure of pension funds and insurance companies worldwideAccess a series of Ortec Finance reports to examine how climate risk exposure and resilience vary among pension funds and insurance companies worldwide
-
17 December 2024PRESS RELEASE: US pension plans report possibility of increasing contributions despite improved funded status
8% of pension plan managers say their funded status has improved over the past year, study shows
-
16 December 2024Climate risk assessment – Top 30 US pension fundsDiscover how climate change impacts the US pension fund industry through an analysis of their climate risk exposure, using Ortec Finance Climate Scenarios