Risk, pp. 84-89, May 2019.
12 Pages Posted: 14 Feb 2018 Last revised: 12 Jun 2019
Date Written: March 25, 2019
Rough volatility models are known to fit the volatility surface remarkably well with very few parameters. On the other hand, the classical Heston model is highly tractable allowing for fast calibration. We present here the rough Heston model which offers the best of both worlds. Even better, we find that we can accurately approximate rough Heston model values by scaling the volatility of volatility parameter of the classical Heston model.
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