Convergence of Heston to SVI

By Jim Gatheral, Antoine Jacquier. 2010

77 citations recorded by the source corpus.

In this short note, we prove by an appropriate change of variables that the SVI implied volatility parameterization presented in Gatheral's book and the large-time asymptotic of the Heston implied volatility agree algebraically, thus confirming a conjecture from Gatheral as well as providing a simpler expression for the asymptotic implied volatility in the Heston model. We show how this result can help in interpreting SVI parameters.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2cb2d4063f6f8858842cff4907a6ec9bc4d067d3

Citations in the corpus

• Arbitrage-free SVI volatility surfaces (2012, unknown): “Moreover, as shown in Gatheral and Jacquier (2011), the SVI parameterization is not arbitrary in the sense that the large-maturity limit of the Heston implied volatility smile is exactly SVI.”