Change of Measure in the Heston Model given a violated Feller Condition

Sascha Desmettre

Papers from arXiv.org

Abstract: When dealing with Heston's stochastic volatility model, the change of measure from the subjective measure P to the objective measure Q is usually investigated under the assumption that the Feller condition is satisfied. This paper closes this gap in the literature by deriving sufficient conditions for the existence of an equivalent (local) martingale measure in the Heston model when the Feller condition is violated. We also supplement the existing literature by the case of a finite lifetime of the Laplace transform of the integrated volatility process. Moreover, we deduce conditions for the stock price process in the Heston model being a true martingale, regardless if the Feller condition is satisfied or not.

Date: 2018-09, Revised 2019-10
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1809.10955 Latest version (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:arx:papers:1809.10955

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().