 Large-maturity regimes of the Heston forward smileAntoine Jacquier () and Patrick Roome Stochastic Processes and their Applications, 2016, vol. 126, issue 4, 1087-1123 Abstract: We provide a full characterisation of the large-maturity forward implied volatility smile in the Heston model. Although the leading decay is provided by a fairly classical large deviations behaviour, the algebraic expansion providing the higher-order terms highly depends on the parameters, and different powers of the maturity come into play. As a by-product of the analysis we provide new implied volatility asymptotics, both in the forward case and in the spot case, as well as extended SVI-type formulae. The proofs are based on extensions and refinements of sharp large deviations theory, in particular in cases where standard convexity arguments fail. Keywords: Stochastic volatility; Heston; Forward implied volatility; Asymptotic expansion; Sharp large deviations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:spapps:v:126:y:2016:i:4:p:1087-1123 Ordering information: This journal article can be ordered from DOI: 10.1016/j.spa.2015.10.012 Access Statistics for this article Stochastic Processes and their Applications is currently edited by T. Mikosch More articles in Stochastic Processes and their Applications from Elsevier |
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