A note on essential smoothness in the Heston model
نویسندگان
چکیده
This note studies an issue relating to essential smoothness that can arise when the theory of large deviations is applied to a certain option pricing formula in the Heston model. The note identifies a gap, based on this issue, in the proof of Corollary 2.4 in [2] and describes how to circumvent it. This completes the proof of Corollary 2.4 in [2] and hence of the main result in [2], which describes the limiting behaviour of the implied volatility smile in the Heston model far from maturity.
منابع مشابه
Portfolio Optimization under Double Heston Duffie-Kan Model and the Price Calculation of the European Option
In this paper, we present a new version of the Double Heston model, where the mixed Duffie-Kan model is used to predict the volatility of the model instead of the CIR process. According to this model, we predict the stock price and calculate the European option price by using the Monte-Carlo method. Finally, by applying the proposed model, we find the optimal portfolio under the Cardinality Con...
متن کاملرویکرد روش مونت کارلوی کمترین مربعات برای قیمت گذاری اختیار فروش آمریکایی چند دارایی تحت مدل هستون-هال وایت
In this paper, we study the problem of pricing multi-asset American-style options in the Heston-Hull-White model. It is widely recognized that our intended model compared to the original Heston model, due to its stochastic interest rate and stochastic volatility, is more compatible with the realistic of the market. We demonstrate the efficiency and accuracy of the our proposed method by verifyi...
متن کاملA Note on the Malliavin differentiability of the Heston Volatility
We show that the Heston volatility or equivalently the Cox-IngersollRoss process satisfying dvt = κ (θ − vt) dt+ ν √ vtdWt is Malliavin differentiable and give an explicit expression for the derivative. This result assures the applicability of Malliavin calculus in the framework of the Heston stochastic volatility model and the CoxIngersoll-Ross model for interest rates.
متن کاملGoodness-of-fit of the Heston model
An analytical formula for the probability distribution of stock-market returns, derived from the Heston model assuming a mean-reverting stochastic volatility, was recently proposed by Drăgulescu and Yakovenko in Quantitative Finance 2002. While replicating their results, we found two significant weaknesses in their method to pre-process the data, which cast a shadow over the effective goodness-...
متن کاملA Comprehensive Model for R and D Project Portfolio Selection with Zero-One Linear Goal-Programming (RESEARCH NOTE)
Technology centered organizations must be able to identify promising new products or process improvements at an early stage so that the necessary resources can be allocated to those activities. It is essential to invest in targeted research and development (R and D) projects as opposed to a wide range of ideas so that resources can be focused on successful outcomes. The selection of the most ap...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
- Finance and Stochastics
دوره 15 شماره
صفحات -
تاریخ انتشار 2011