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Short-maturity asymptotics for a fast mean reverting stochastic volatility model

Feng, Jin
Forde, Martin
Fouque, Jean-Pierre
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Abstract
In this paper, we study the Heston stochastic volatility model in a regime where the maturity is small but large compared to the mean-reversion time of the stochastic volatility factor. We derive a large deviation principle and compute the rate function by a precise study of the moment generating function and its asymptotic. We then obtain asymptotic prices for out-of-the-money call and put options and their corresponding implied volatilities.
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This is the published version, also available here: http://dx.doi.org/10.1137/090745465.
Date
2010-02-10
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Society for Industrial and Applied Mathematics
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Feng, Jin., Forde, Martin., Fouque, Jean-Pierre. "Short maturity asymptotics for a fast mean reverting stochastic volatility model." SIAM Journal on Financial Mathematics. (2010) 1, 1. 126-141. http://www.dx.doi.org/10.1137/090745465.
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