A new look at the Heston characteristic function

Details A new look at the Heston characteristic function A new look at the Heston characteristic function

2009-02-12

arxiv.org/abs/0902.2154v1

Mathematics

Probability

Scientific paper

A new expression for the characteristic function of log-spot in Heston model is presented. This expression more clearly exhibits its properties as an analytic characteristic function and allows us to compute the exact domain of the moment generating function. This result is then applied to the volatility smile at extreme strikes and to the control of the moments of spot. We also give a factorization of the moment generating function as product of Bessel type factors, and an approximating sequence to the law of log-spot is deduced.

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