Abstract
In this article we consider the Heston model of the stock price behaviour. While the volatility of the model is the non-linear function of another stochastic unobservable function, that is why we consider linearizing all non-linear functions of the model. The aim is to make the Heston model simpler for practical applications, in particular for solving the filtration problem. The filtration problem for the models of the financial market consists of evaluating of unobservable model parameters, having got the stock price observations.
Highlights
Heston model [11] is the model of stock price behaviour where the volatility of the asset price is not constant or a deterministic function, but is itself a stochastic process
In this article we considered the filtration of unknown parameters of the asset price behaviour model, called the Heston model
The main feature of this model is that the volatility or the asset price is not constant, but instead is a stochastic process
Summary
In this article we consider the Heston model of the stock price behaviour. While the volatility of the model is the non-linear function of another stochastic unobservable function, that is why we consider linearizing all nonlinear functions of the model. The aim is to make the Heston model simpler for practical applications, in particular for solving the filtration problem. The filtration problem for the models of the financial market consists of evaluating of unobservable model parameters, having got the stock price observations
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