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adjusted Heston model to address short term OTM spike
I observed recent rush for calls at this rally.as a result, iv for OTM calls are sky high some day.Is there a adjusted heston model that can address this tail spike?
adjusted Heston model to address short term OTM spike
sure -- adjust by adding a two-sided jump distribution -- say double exponential
adjusted Heston model to address short term OTM spike
QuoteOriginally posted by: Alansure -- adjust by adding a two-sided jump distribution -- say double exponentialis there a close form with that?
adjusted Heston model to address short term OTM spike
There is a closed-form characteristic function (assuming the jumps are independent of the Brownian motions of course).
adjusted Heston model to address short term OTM spike
QuoteOriginally posted by: AntonioThere is a closed-form characteristic function (assuming the jumps are independent of the Brownian motions of course).Antoniocan you name a paper on this closed form?
adjusted Heston model to address short term OTM spike
The Heston characteristic function is available in many papers, just google it.For the double exponential jumps, you can look at the original paper by Steve Kou.Best,