Rational Approximation of the Rough Heston Solution

International Journal of Theoretical and Applied Finance, 2019, Forthcoming

18 Pages Posted: 20 Jun 2018 Last revised: 31 Jan 2019

See all articles by Jim Gatheral

Jim Gatheral

CUNY Baruch College

Rados Radoicic

CUNY Baruch College

Date Written: January 29, 2019

Abstract

We present a simple rational approximation to the solution of the rough Heston Riccati equation valid in a region of its domain relevant to option valuation. Pricing under rough Heston using this approximation is both fast and very accurate.

Keywords: Rough Heston Model, Padé Approximant, Rational Approximation, Volatility Smile, Leverage Swap

JEL Classification: C2, C3, C4, C6

Suggested Citation

Gatheral, Jim and Radoicic, Rados, Rational Approximation of the Rough Heston Solution (January 29, 2019). International Journal of Theoretical and Applied Finance, 2019, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3191578 or http://dx.doi.org/10.2139/ssrn.3191578

Jim Gatheral (Contact Author)

CUNY Baruch College ( email )

Department of Mathematics
One Bernard Baruch Way
New York, NY 10010
United States

Rados Radoicic

CUNY Baruch College ( email )

One Bernard Baruch Way
New York, NY 10010
United States

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