It is playtime again - The Heston volatility surface

In our model blog post series we are currently discussing the Heston model. After a short description of the model and its characteristic function we will examine today how the model parameters relate to the volatility surface.

My tool of choice to visualise this relationship is Mathematica with its interactive functionality. The linked cdc is form the Wolframs Demonstration Project. For the calculations characteristic function methods are used.

You can download the app here. The Wolfram CDF player to run the app can be downloaded here.