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Medium · options_pricing · Quant Researcher interview question · options-pricing, monte-carlo, stochastic-volatility, heston, euler-maruyama
The Heston model is a stochastic-volatility model that explains the volatility smile by coupling asset price diffusion to a mean-reverting variance process. Monte Carlo simulation is a standard method for pricing options under Heston, especially for exotic payoffs where closed-form solutions are unavailable. This task involves implementing a Monte Carlo pricer using the Euler-Maruyama discretization scheme. Task Implement the function solution(S0, K, T, r, v0, kappa, theta, xi, rho, n_steps, n_