Lifting the Heston model

Eduardo Abi Jaber ()
Additional contact information
Eduardo Abi Jaber: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: How to reconcile the classical Heston model with its rough counterpart? We introduce a lifted version of the Heston model with n multi-factors, sharing the same Brownian motion but mean reverting at different speeds. Our model nests as extreme cases the classical Heston model (when n = 1), and the rough Heston model (when n goes to infinity). We show that the lifted model enjoys the best of both worlds: Markovianity and satisfactory fits of implied volatility smiles for short maturities with very few parameters. Further, our approach speeds up the calibration time and opens the door to time-efficient simulation schemes.

Keywords: rough volatility; Riccati equations; Stochastic volatility; implied volatility; affine Volterra processes (search for similar items in EconPapers)
Date: 2019
Note: View the original document on HAL open archive server: https://hal.science/hal-01890751v3
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Published in Quantitative Finance, In press

Downloads: (external link)
https://hal.science/hal-01890751v3/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01890751

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().