The Alpha‐Heston stochastic volatility model

Ying Jiao (), Chunhua Ma, Simone Scotti () and Chao Zhou
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Ying Jiao: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, ISFA - Institut de Science Financière et d'Assurances

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Abstract: Abstract We introduce an affine extension of the Heston model, called the ‐Heston model, where the instantaneous variance process contains a jump part driven by ‐stable processes with . In this framework, we examine the implied volatility and its asymptotic behavior for both asset and VIX options. Furthermore, we study the jump clustering phenomenon observed on the market. We provide a jump cluster decomposition for the variance process where each cluster is induced by a "mother jump" representing a triggering shock followed by "secondary jumps" characterizing the contagion impact.

Date: 2021-04-05
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Published in Mathematical Finance, 2021, 31 (3), pp.943-978. ⟨10.1111/mafi.12306⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04894037

DOI: 10.1111/mafi.12306

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