Large-Maturity Regimes of the Heston Forward Smile

Antoine Jacquier () and Patrick Roome

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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.

Date: 2014-10, Revised 2015-08
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Citations: View citations in EconPapers (2)

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Journal Article: Large-maturity regimes of the Heston forward smile (2016)
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