Heston stochastic vol-of-vol model for joint calibration of VIX and S\&P 500 options
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Publication:4554477
DOI10.1080/14697688.2017.1412493zbMATH Open1400.91589arXiv1706.00873OpenAlexW2624345357MaRDI QIDQ4554477FDOQ4554477
Authors: Jean-Pierre Fouque, Yuri F. Saporito 
Publication date: 14 November 2018
Published in: Quantitative Finance (Search for Journal in Brave)
Abstract: A parsimonious generalization of the Heston model is proposed where the volatility-of-volatility is assumed to be stochastic. We follow the perturbation technique of Fouque et al (2011, CUP) to derive a first order approximation of the price of options on a stock and its volatility index. This approximation is given by Heston's quasi-closed formula and some of its Greeks. It can be very efficiently calculated since it requires to compute only Fourier integrals and the solution of simple ODE systems. We exemplify the calibration of the model with S&P 500 and VIX data.
Full work available at URL: https://arxiv.org/abs/1706.00873
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Cited In (35)
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- Rejoinder to a remark on Lin and Chang's paper `Consistent modeling of S\&P 500 and VIX derivatives'
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