The Heston Model with Time-Dependent Correlation Driven by Isospectral Flows
Keyword(s):
In this work, we extend the Heston stochastic volatility model by including a time-dependent correlation that is driven by isospectral flows instead of a constant correlation, being motivated by the fact that the correlation between, e.g., financial products and financial institutions is hardly a fixed constant. We apply different numerical methods, including the method for backward stochastic differential equations (BSDEs) for a fast computation of the extended Heston model. An example of calibration to market data illustrates that our extended Heston model can provide a better volatility smile than the Heston model with other considered extensions.
2016 ◽
Vol 19
(05)
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pp. 1650031
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Keyword(s):
2019 ◽
Vol 22
(04)
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pp. 1950009
2017 ◽
Vol 20
(08)
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pp. 1750055
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2012 ◽
Vol 15
(05)
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pp. 1250033
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2008 ◽
Vol 40
(01)
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pp. 144-162
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2012 ◽
Vol 03
(03)
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pp. 1250009
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