BibTex format
@article{Jacquier:2013,
author = {Jacquier, A and Roome, P},
journal = {SIAM Journal on Financial Mathematics},
title = {The Small-Maturity Heston Forward Smile},
url = {http://arxiv.org/abs/1303.4268v3},
year = {2013}
}
Citation
RIS format (EndNote, RefMan)
TY - JOUR
AB - In this paper we investigate the asymptotics of forward-start options and theforward implied volatility smile in the Heston model as the maturity approacheszero. We prove that the forward smile for out-of-the-money options explodes andcompute a closed-form high-order expansion detailing the rate of the explosion.Furthermore the result shows that the square-root behaviour of the varianceprocess induces a singularity such that for certain parameter configurationsone cannot obtain high-order out-of-the-money forward smile asymptotics. In theat-the-money case a separate model-independent analysis shows that thesmall-maturity limit is well defined for any Ito diffusion. The proofs rely onthe theory of sharp large deviations (and refinements) and incidentally weprovide an example of degenerate large deviations behaviour.
AU - Jacquier,A
AU - Roome,P
PY - 2013///
TI - The Small-Maturity Heston Forward Smile
T2 - SIAM Journal on Financial Mathematics
UR - http://arxiv.org/abs/1303.4268v3
ER -
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