More documents from Grasselli, Martino; Da Fonseca, Jose; Tebaldi, Claudio
More documents from Quantitative Finance

Export to your Reference Manger

Please Copy & Paste



Bookmark and Share

A Multifactor Volatility Heston Model

[journal article]

Grasselli, Martino; Da Fonseca, Jose; Tebaldi, Claudio

fulltextDownloadDownload full text

(413 KByte)

Citation Suggestion

Please use the following Persistent Identifier (PID) to cite this document:

Further Details
Abstract We consider a model for a single risky asset whose volatility follows a multifactor (matrix)Wishart affine process, recently introduced in finance by Gourieroux and Sufana (2004). As in standard Duffie and Kan (1996) affine models the pricing problem can be solved through the Fast Fourier Transform of Carr and Madan (1999). A numerical illustration shows that this specification provides a separate fit of the long term and short term implied volatility surface and, differently from previous diffusive stochastic volatility models, it is possible to identify a specific factor accounting for a stochastic leverage effect, a well known stylized fact of FX option markets analyzed in Carr and Wu (2004).
Classification Basic Research, General Concepts and History of Economics; Economic Statistics, Econometrics, Business Informatics
Method theory application
Free Keywords Stochastic volatility; Financial derivatives; Volatility modelling; Options pricing; Options volatility
Publication Year 2008
Page/Pages p. 591-604
Journal Quantitative Finance, 8 (2008) 6
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)