Heston Model
Also called: Heston, Heston stochastic volatility model
The Heston model prices options with volatility that is itself random and mean-reverting, rather than the constant Black-Scholes assumes. Because it allows the volatility shock to correlate with the price shock, it reproduces the observed skew — down moves come with rising vol — and it has a semi-analytic solution, which makes calibration fast. Its known weakness is fitting short-dated smiles, where jump models do better.
Where this is taught
Definitions are the trailer. These free levels turn Heston Model into something you play — one bite-size lesson, with worked examples, a quiz and XP.