Stationary Heston model: calibration and pricing of exotics using product recursive quantization
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Publication:5079352
DOI10.1080/14697688.2021.2023205zbMATH Open1491.91147arXiv2001.03101OpenAlexW2998823502MaRDI QIDQ5079352FDOQ5079352
Authors: Thibaut Montes, Gilles Pagès, V. Lemaire 
Publication date: 27 May 2022
Published in: Quantitative Finance (Search for Journal in Brave)
Abstract: A major drawback of the Standard Heston model is that its implied volatility surface does not produce a steep enough smile when looking at short maturities. For that reason, we introduce the Stationary Heston model where we replace the deterministic initial condition of the volatility by its invariant measure and show, based on calibrated parameters, that this model produce a steeper smile for short maturities than the Standard Heston model. We also present numerical solution based on Product Recursive Quantization for the evaluation of exotic options (Bermudan and Barrier options).
Full work available at URL: https://arxiv.org/abs/2001.03101
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