Asymptotics of Implied Volatility in the Gatheral Double Stochastic Volatility Model
Анотація
We consider a market model of financial engineering with three factors represented by three correlated Brownian motions. The volatility of the risky asset in this model is the sum of two stochastic volatilities. The dynamic of each volatility is governed by a mean-reverting process. The first stochastic volatility of mean-reversion process reverts to the second volatility at a fast rate, while the second volatility moves slowly to a constant level over time with the state of the economy.
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