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A note on essential smoothness in the Heston model

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Abstract

This note identifies a gap in the proof of Corollary 2.4 in Forde and Jacquier (Finance Stoch., 2011) which arises because the essential smoothness of the family (X t /t) t≥1 can fail for the log-spot process X in the Heston model, and it describes how to circumvent the issue by applying a standard argument from large deviation theory.

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References

  1. Dembo, A., Zeitouni, O.: Large Deviations Techniques and Applications, 2nd edn. Springer, New York (1998)

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  2. Forde, M., Jacquier, A.: The large-maturity smile for the Heston model. Finance Stoch. (2011, to appear). doi:10.1007/s00780-010-0147-3

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Authors and Affiliations

  1. Department of Mathematical Sciences, Dublin City University, Dublin, Ireland

    Martin Forde

  2. Department of Mathematics, TU Berlin, Berlin, Germany

    Antoine Jacquier

  3. Department of Statistics, University of Warwick, Warwick, UK

    Aleksandar Mijatović

Authors
  1. Martin Forde
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  2. Antoine Jacquier
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  3. Aleksandar Mijatović
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Corresponding author

Correspondence to Aleksandar Mijatović.

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Forde, M., Jacquier, A. & Mijatović, A. A note on essential smoothness in the Heston model. Finance Stoch 15, 781–784 (2011). https://doi.org/10.1007/s00780-011-0162-z

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  • DOI: https://doi.org/10.1007/s00780-011-0162-z

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