Asymptotic Behaviour of the Fractional Heston Model
Author | : Hamza Guennoun |
Publisher | : |
Total Pages | : 15 |
Release | : 2014 |
ISBN-10 | : OCLC:1308839436 |
ISBN-13 | : |
Rating | : 4/5 (36 Downloads) |
Download or read book Asymptotic Behaviour of the Fractional Heston Model written by Hamza Guennoun and published by . This book was released on 2014 with total page 15 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider here the fractional version of the Heston model originally proposed by Comte, Coutin and Renault. Inspired by some recent ground-breaking work by Gatheral, Jaisson and Rosenbaum, who showed that fractional Brownian motion with short memory allows for a better calibration of the volatility surface (as opposed to the classical econometric approach of long memory of volatility), we provide a characterisation of the short- and long-maturity asymptotics of the implied volatility smile. Our analysis reveals that the short-memory property precisely provides a jump-type behaviour of the smile for short maturities, thereby fixing the well-known standard inability of classical stochastic volatility models to fit the short-end of the volatility skew.