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The Alpha-Heston Stochastic Volatility Model

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  • Ying Jiao
  • Chunhua Ma
  • Simone Scotti
  • Chao Zhou

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.

Suggested Citation

  • Ying Jiao & Chunhua Ma & Simone Scotti & Chao Zhou, 2018. "The Alpha-Heston Stochastic Volatility Model," Papers 1812.01914, arXiv.org.
    • Handle: RePEc:arx:papers:1812.01914
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    References listed on IDEAS

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    Cited by:

    1. Ulrich Horst & Wei Xu, 2019. "The Microstructure of Stochastic Volatility Models with Self-Exciting Jump Dynamics," Papers 1911.12969, arXiv.org.

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