We focus on closed-form option pricing in Heston's stochastic volatility model, where closed-form formulas exist only for a few option types. Most of these closed-form solutions are constructed from characteristic functions. We follow this closed-form approach and derive multivariate...

Compound options are not only sensitive to future movements of the underlying asset price, but also to future changes in volatility levels. Because the Black–Scholes analytical valuation formula for compound options is not able to incorporate the sensitivity to volatility, the aim of this...