Work

The Skewness Implied in the Heston Model and Its Application

Year: 2016

Type: article

Abstract: In this paper, we provide an exact formula for the skewness of stock returns implied in the Heston (1993) model by using a moment‐computing approach. We compute the moments of It integrals by using It 's Lemma skillfully. The model's affine property allows us to obtain analytical formulas for cumulants. The formulas for the variance and the third cumulant are written as time‐weighted sums of expected instantaneous variance, which are neater and more intuitive than those obtained with the characteristic function approach. Our skewness formula is then applied in calibrating Heston's model by using the market data of the CBOE VIX and SKEW. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:211–237, 2017

Source: Journal of Futures Markets

DOI: 10.1002/fut.21801

Authors: Jin E. Zhang, Fang Zhen, Xiaoxia Sun, Huimin Zhao

Institutions: University of Otago, Dongbei University of Finance and Economics, Sun Yat-sen University

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2504643558

FWCI: 1.67

Cites: 34

Cited by: 22

Related to: 10