New method predicts European option prices with 98% accuracy.
The article explores how uncertainty in pricing parameters affects European option prices in stochastic volatility models. By allowing parameters to change over time within a set range, the researchers treat the problem as a control issue to optimize option values. They use equations from Heston's model and various numerical methods to analyze the impact. Applying their findings to S&P 500 data, they find that their model-prices closely match 98% of market prices for European call options.