Preprint Review Version 1 Preserved in Portico This version is not peer-reviewed

Fractional Riccati Equation and Its Applications to Rough Heston Model

Version 1 : Received: 22 February 2020 / Approved: 23 February 2020 / Online: 23 February 2020 (02:37:33 CET)

A peer-reviewed article of this Preprint also exists.

Jeng, S.W.; Kilicman, A. Fractional Riccati Equation and Its Applications to Rough Heston Model Using Numerical Methods. Symmetry 2020, 12, 959. Jeng, S.W.; Kilicman, A. Fractional Riccati Equation and Its Applications to Rough Heston Model Using Numerical Methods. Symmetry 2020, 12, 959.

Journal reference: Symmetry 2020, 12, 959
DOI: 10.3390/sym12060959

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.

Subject Areas

Fractional Riccati equation; Rough volatility models; Heston model

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