Large Deviations for the Extended Heston Model: The Large-Time Case.

Jacquier, Antoine; Mijatović, Aleksandar

We study here the large-time behaviour of all continuous affine stochastic volatility models [in the sense of Keller-Ressel (Math Finan 21(1):73-98, )] and deduce a closed-form formula for the large-maturity implied volatility smile. We concentrate on (rescaled) strikes around the money, which are the most common in practice, and extend the results in Forde and Jacquier (Finan Stoch 15(4):755-780, ) and Gatheral and Jacquier (Quant Finan 11(8):1129-1132, ).

LARGE deviation theory; ASYMPTOTIC distribution; MARKETING research; ACCOUNTING; FINANCIAL management

Asia-Pacific Financial Markets, 2014, Vol 21, Issue 3, p263

1387-2834

Academic Journal

10.1007/s10690-014-9185-8