Large Deviations for the Extended Heston Model: The Large-Time Case

Antoine Jacquier (ajacquie@imperial.ac.uk) and Aleksandar Mijatović (a.mijatovic@imperial.ac.uk)

Asia-Pacific Financial Markets, 2014, vol. 21, issue 3, 263-280

Abstract: We study here the large-time behaviour of all continuous affine stochastic volatility models [in the sense of Keller-Ressel (Math Finan 21(1):73–98, 2011 )] and deduce a closed-form formula for the large-maturity implied volatility smile. We concentrate on (rescaled) strikes around the money, which are the most common in practice, and extend the results in Forde and Jacquier (Finan Stoch 15(4):755–780, 2011 ) and Gatheral and Jacquier (Quant Finan 11(8):1129–1132, 2011 ). Copyright Springer Japan 2014

Keywords: Heston; Implied volatility; Asymptotics; Large deviations (search for similar items in EconPapers)
Date: 2014
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Working Paper: Large deviations for the extended Heston model: the large-time case (2012)
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DOI: 10.1007/s10690-014-9185-8

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