Submitted:
22 February 2020
Posted:
23 February 2020
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Abstract
Rough volatility models are popularized by \cite{gatheral2018volatility}, where they have shown that the empirical volatility in the financial market is extremely consistent with rough volatility. Fractional Riccati equation as a part of computation for the characteristic function of rough Heston model is not known in explicit form as of now and therefore, we must rely on numerical methods to obtain a solution. In this paper, we give a short introduction to option pricing theory and an overview of the current advancements on the rough Heston model.
Keywords:
Fractional Riccati equation
; Rough volatility models
; Heston model
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