Moment explosions and long-term behavior of affine stochastic volatility models
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Publication:3069958
Abstract: We consider a class of asset pricing models, where the risk-neutral joint process of log-price and its stochastic variance is an affine process in the sense of Duffie, Filipovic and Schachermayer [2003]. First we obtain conditions for the price process to be conservative and a martingale. Then we present some results on the long-term behavior of the model, including an expression for the invariant distribution of the stochastic variance process. We study moment explosions of the price process, and provide explicit expressions for the time at which a moment of given order becomes infinite. We discuss applications of these results, in particular to the asymptotics of the implied volatility smile, and conclude with some calculations for the Heston model, a model of Bates and the Barndorff-Nielsen-Shephard model.
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Cited in
(63)- Moment explosions in the rough Heston model
- Large deviations and stochastic volatility with jumps: asymptotic implied volatility for affine models
- The large-maturity smile for the Heston model
- On valuing stochastic perpetuities using new long horizon stock price models distinguishing booms, busts, and balanced markets
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- CBI-time-changed Lévy processes
- Some estimates in extended stochastic volatility models of Heston type
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