hard · Quantitative Finance derivatives
In the Heston stochastic volatility model, the variance process is dv_t = κ(θ - v_t) dt + xi sqrtv_t dW_t.
For a calibration where κ = 2.0, θ = 0.04, and xi = 0.5, does the Feller condition hold?
- Yes, because κθ = 0.08 is greater than xi = 0.5.
- No, because 2κθ = 0.16 is less than xi^2 = 0.25.
- Yes, because 2κθ = 0.16 is positive.
- No, because the volatility of variance xi must be smaller than the mean reversion speed κ.
Sign up free to see the explanation and track your rank →
More Quantitative Finance derivatives practice
- If the underlying stock price S moves by +$2.00 over a very short interval, what is the es
- If the risk-neutral probability of an up move is p = 0.6 and the risk-free rate is zero, w
- When pricing a 'Digital' (or Binary) call option near expiry with the spot price very clos
- In the context of the Black-Scholes PDE, the Greek 'Theta' (Theta) measures the sensitivit
- When calibrating a Heston stochastic volatility model, a pra… — Does this calibration sati
- Based on put-call parity, what is the arbitrage-free relationship?
- Given a continuously compounded risk-free rate of 5%, what is the price of the correspondi
- If the risk-free growth factor is e^rT = 1.02, what is the risk-neutral probability p^* of