We provide a tractable introduction to option pricing models and examine how the complex analysis concept of branch-cutting influences financial mathematics. The Black-Scholes model is introduced to motivate our discussion of the Heston stochastic volatility model, a model which dominates industry and option pricing literature in financial mathematics. We focus on developing mathematical intuition as a tool for stimulating further undergraduate interest and research in financial mathematics. We provide code in R and Mathematica for applications.
Cape, Joshua; Dearden, Willam; Gamber, William; and Nguyen, Linh
"First Encounters with Option Pricing and Return Simulation,"
Rose-Hulman Undergraduate Mathematics Journal: Vol. 16:
1, Article 11.
Available at: https://scholar.rose-hulman.edu/rhumj/vol16/iss1/11