hard · Quantitative Finance derivatives
If a Heston model is calibrated with ρ = -0.7, how would the price of an out-of-the-money (OTM) put compare to a Black-Scholes price with the same at-the-money volatility?
- The Heston OTM put would be more expensive.
- The Heston OTM put would be cheaper.
- The prices would be identical.
- The Heston OTM put price would be zero because of the leverage effect.
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