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The Alpha‐Heston stochastic volatility model

Author

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  • Ying Jiao

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, ISFA - Institut de Science Financière et d'Assurances)

  • Chunhua Ma
  • Simone Scotti
  • Chao Zhou

Abstract

We introduce an affine extension of the Heston model, called the ‐Heston model, where the instantaneous variance process contains a jump part driven by ‐stable processes with . In this framework, we examine the implied volatility and its asymptotic behavior for both asset and VIX options. Furthermore, we study the jump clustering phenomenon observed on the market. We provide a jump cluster decomposition for the variance process where each cluster is induced by a "mother jump" representing a triggering shock followed by "secondary jumps" characterizing the contagion impact.

Suggested Citation

  • Ying Jiao & Chunhua Ma & Simone Scotti & Chao Zhou, 2021. "The Alpha‐Heston stochastic volatility model," Post-Print hal-04894037, HAL.
    • Handle: RePEc:hal:journl:hal-04894037
    DOI: 10.1111/mafi.12306
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    Cited by:

    1. Alessandro Bondi & Sergio Pulido & Simone Scotti, 2024. "The rough Hawkes Heston stochastic volatility model," Post-Print hal-03827332, HAL.

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