Asymptotic formulae for implied volatility in the Heston model

DOI10.1098/RSPA.2009.0610zbMATH Open1211.91253arXiv0911.2992OpenAlexW1974832466MaRDI QIDQ2997309FDOQ2997309

Authors: Martin Forde, Antoine Jacquier, Aleksandar Mijatović 

Publication date: 6 May 2011

Published in: Proceedings of the Royal Society A: Mathematical, Physical and Engineering Sciences (Search for Journal in Brave)

Abstract: In this paper we prove an approximate formula expressed in terms of elementary functions for the implied volatility in the Heston model. The formula consists of the constant and first order terms in the large maturity expansion of the implied volatility function. The proof is based on saddlepoint methods and classical properties of holomorphic functions.

Full work available at URL: https://arxiv.org/abs/0911.2992

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zbMATH Keywords

asymptoticsimplied volatilityclosed-form formulasaddlepoint expansionsheston model

Mathematics Subject Classification ID

Statistical methods; risk measures (91G70) Applications of stochastic analysis (to PDEs, etc.) (60H30) Stochastic models in economics (91B70)

Cites Work

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• SMALL-TIME ASYMPTOTICS FOR IMPLIED VOLATILITY UNDER THE HESTON MODEL
• THE MOMENT FORMULA FOR IMPLIED VOLATILITY AT EXTREME STRIKES
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• Asymptotics of Implied Volatility far from Maturity
• REGULAR VARIATION AND SMILE ASYMPTOTICS
• Analytical methods for hedging systematic credit risk with linear factor portfolios
• Can the implied volatility surface move by parallel shifts?

Cited In (42)

• Large deviations and stochastic volatility with jumps: asymptotic implied volatility for affine models
• The large-maturity smile for the Heston model
• Monotonicity of prices in Heston model
• Asymptotic equivalence in Lee's moment formulas for the implied volatility, asset price models without moment explosions, and Piterbarg's conjecture
• Asymptotics of implied volatility to arbitrary order
• Asymptotic Formulas with Error Estimates for Call Pricing Functions and the Implied Volatility at Extreme Strikes
• THE MOMENT FORMULA FOR IMPLIED VOLATILITY AT EXTREME STRIKES
• Asymptotics of Implied Volatility far from Maturity
• The small and large time implied volatilities in the minimal market model
• An improved asymptotics of implied volatility in the gatheral model
• The randomized Heston model
• A moment matching method for option pricing under stochastic interest rates
• The large-maturity smile for the Stein-Stein model
• The Gärtner-Ellis theorem, homogenization, and affine processes
• Large deviations for the extended Heston model: the large-time case
• Large-maturity regimes of the Heston forward smile
• The Heston Riemannian distance function
• A neural network-based framework for financial model calibration
• Option valuation under double exponential jump with stochastic intensity, stochastic interest rates and Markov regime-switching stochastic volatility
• The small-time smile and term structure of implied volatility under the Heston model
• Application of large deviation methods to the pricing of index options in finance.
• Asymptotics for exponential Lévy processes and their volatility smile: survey and new results
• Heston model: the variance swap calibration
• On asymptotically arbitrage-free approximations of the implied volatility
• A decomposition formula for option prices in the Heston model and applications to option pricing approximation
• Asymptotic behavior of the fractional Heston model
• Asymptotics of Forward Implied Volatility
• On refined volatility smile expansion in the Heston model
• A unified option pricing model with Markov regime-switching double stochastic volatility, stochastic interest rate and jumps
• An explicit implied volatility formula
• Second order expansion for implied volatility in two factor local stochastic volatility models and applications to the dynamic \(\lambda\)-SABR model
• Convergence of Heston to SVI
• Approximation formulas for short-maturity near-the-money implied volatilities in the Heston and SABR models
• From characteristic functions to implied volatility expansions
• Bridge successive states for a complex system with evolutionary matrix
• Small-time asymptotics for Gaussian self-similar stochastic volatility models
• Asymptotic analysis of a double integral occurring in the rough Bergomi model
• The term structure of implied volatility in symmetric models with applications to Heston
• Low-bias simulation scheme for the Heston model by Inverse Gaussian approximation
• Distance to the line in the Heston model
• IMPLIED VOLATILITY IN THE HULL-WHITE MODEL
• The large-maturity smile for the SABR and CEV-Heston models

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