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Article Dans Une Revue Quantitative Finance Année : 2019

Lifting the Heston model

Résumé

How to reconcile the classical Heston model with its rough counterpart? We introduce a lifted version of the Heston model with n multi-factors, sharing the same Brownian motion but mean reverting at different speeds. Our model nests as extreme cases the classical Heston model (when n = 1), and the rough Heston model (when n goes to infinity). We show that the lifted model enjoys the best of both worlds: Markovianity and satisfactory fits of implied volatility smiles for short maturities with very few parameters. Further, our approach speeds up the calibration time and opens the door to time-efficient simulation schemes.
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Dates et versions

hal-01890751 , version 1 (08-10-2018)
hal-01890751 , version 2 (01-05-2019)
hal-01890751 , version 3 (17-11-2019)

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Eduardo Abi Jaber. Lifting the Heston model. Quantitative Finance, In press. ⟨hal-01890751v3⟩
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