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The Alpha-Heston Stochastic Volatility Model

Ying Jiao, Chunhua Ma, Simone Scotti and Chao Zhou

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Abstract: We introduce an affine extension of the Heston model where the instantaneous variance process contains a jump part driven by $\alpha$-stable processes with $\alpha\in(1,2]$. In this framework, we examine the implied volatility and its asymptotic behaviors for both asset and variance options. Furthermore, we examine the jump clustering phenomenon observed on the variance market and provide a jump cluster decomposition which allows to analyse the cluster processes.

New Economics Papers: this item is included in nep-rmg
Date: 2018-12
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