School project about Black Scholes with stochastic volatility

[Aber]

In a university project I am looking at Black Scholes model with a stochastic volatility. I’m still not quite sure about my focus (I am in the beginning 'Idea phase'). I want to explain the theory behind stochastic differential equation and then implement some numerical methods too solve pricing models. I haven’t worked much with idea. Please make some suggestions/comments? How can I analyze some data from from the real world? I want to include simulations of real options prices or similar in my project. Thanks

 

[vickymaj]

Why dont u start with the basics of deriving the Black Scholes PDE and then solving it to get a closed form solution like the Call Option Formula everyone uses. Validate the results with some Finite Difference and Monte Carlo. Once you are comfortable you can play around with a Stochastic Vol Model advancement and also an Interest Rate Model in Black Scholes. Just an idea. Not sure how advance a project you are talking about, graduate or under grad?

 

[Aber]

Why dont u start with the basics of deriving the Black Scholes PDE and then solving it to get a closed form solution like the Call Option Formula everyone uses. Validate the results with some Finite Difference and Monte Carlo. Once you are comfortable you can play around with a Stochastic Vol Model advancement and also an Interest Rate Model in Black Scholes. Just an idea. Not sure how advance a project you are talking about, graduate or under grad?

It's under grad. Can you recommend some books articles?

 

[Daniel Duffy]

Espen Haug Complete Options book,