Editing Stochastic process (section)

==== Stochastic Volatility Models ====
Another significant application of stochastic processes in finance is in '''[[Stochastic volatility|stochastic volatility models]]''', which aim to capture the time-varying nature of market volatility. The '''[[Heston model]]'''<ref>{{Cite journal |last=Heston |first=Steven L. |date=1993 |title=A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options |url=https://www.jstor.org/stable/2962057 |journal=The Review of Financial Studies |volume=6 |issue=2 |pages=327–343 |doi=10.1093/rfs/6.2.327 |jstor=2962057 |issn=0893-9454}}</ref> is a popular example, allowing for the volatility of asset prices to follow its own stochastic process. Unlike the Black-Scholes model, which assumes constant volatility, stochastic volatility models provide a more flexible framework for modeling market dynamics, particularly during periods of high uncertainty or market stress.