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Comment on: A Note on the Discontinuity Problem in Heston's Stochastic Volatility Model

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  • Roger Lord

Abstract

Guo and Hung (2007) recently studied the complex logarithm present in the characteristic function of Heston's stochastic volatility model. They proposed an algorithm for the evaluation of the characteristic function that is claimed to preserve its continuity. We show their algorithm is correct, although their proof is not.

Suggested Citation

  • Roger Lord, 2010. "Comment on: A Note on the Discontinuity Problem in Heston's Stochastic Volatility Model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 17(4), pages 373-376.
    • Handle: RePEc:taf:apmtfi:v:17:y:2010:i:4:p:373-376
    DOI: 10.1080/13504860903387612
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    References listed on IDEAS

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    1. Bakshi, Gurdip & Cao, Charles & Chen, Zhiwu, 1997. "Empirical Performance of Alternative Option Pricing Models," Journal of Finance, American Finance Association, vol. 52(5), pages 2003-2049, December.
    2. Jia-Hau Guo & Mao-Wei Hung, 2007. "A Note on the Discontinuity Problem in Heston's Stochastic Volatility Model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 14(4), pages 339-345.
    3. Mark Broadie & Özgür Kaya, 2006. "Exact Simulation of Stochastic Volatility and Other Affine Jump Diffusion Processes," Operations Research, INFORMS, vol. 54(2), pages 217-231, April.
    4. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    5. Rainer Schöbel & Jianwei Zhu, 1999. "Stochastic Volatility With an Ornstein–Uhlenbeck Process: An Extension," Review of Finance, European Finance Association, vol. 3(1), pages 23-46.
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    Cited by:

    1. Tetsuya Adachi & Takumi Sueshige & Toshinao Yoshiba, 2019. "Wrong-way Risk in Credit Valuation Adjustment of Credit Default Swap with Copulas," IMES Discussion Paper Series 19-E-01, Institute for Monetary and Economic Studies, Bank of Japan.

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