Large deviations for the extended Heston model: the large-time case

DOI10.1007/S10690-014-9185-8zbMATH Open1418.91395arXiv1203.5020OpenAlexW3123669369MaRDI QIDQ1627673FDOQ1627673

Authors: Antoine Jacquier, Aleksandar Mijatović 

Publication date: 3 December 2018

Published in: Asia-Pacific Financial Markets (Search for Journal in Brave)

Abstract: We study here the large-time behaviour of all continuous affine stochastic volatility models (in the sense of Keller-Ressel) and deduce a closed-form formula for the large-maturity implied volatility smile. Based on refinements of the Gartner-Ellis theorem on the real line, our proof reveals pathological behaviours of the asymptotic smile. In particular, we show that the condition assumed in Gatheral and Jacquier under which the Heston implied volatility converges to the SVI parameterisation is necessary and sufficient.

Full work available at URL: https://arxiv.org/abs/1203.5020

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zbMATH Keywords

asymptoticslarge deviationsimplied volatilityHeston

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Large deviations (60F10) Stochastic models in economics (91B70)

Cites Work

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Cited In (14)

• Large deviations and stochastic volatility with jumps: asymptotic implied volatility for affine models
• On the valuation of discrete Asian options in high volatility environments
• The large-maturity smile for the Heston model
• Long-time large deviations for the multiasset Wishart stochastic volatility model and option pricing
• The large-maturity smile for the Stein-Stein model
• The Gärtner-Ellis theorem, homogenization, and affine processes
• Estimation of the realized (co-)volatility vector: large deviations approach
• Large-maturity regimes of the Heston forward smile
• Asymptotics of Forward Implied Volatility
• On refined volatility smile expansion in the Heston model
• Correction note for ``The large-maturity smile for the Heston model
• Moment explosions and long-term behavior of affine stochastic volatility models
• Some estimates in extended stochastic volatility models of Heston type
• The large-maturity smile for the SABR and CEV-Heston models

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