Convergence of Heston to SVI

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.Comment: 5 page

Arbitrage-free SVI volatility surfaces

In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility surface in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the high quality of typical SVI fits with a numerical example using recent SPX options data.Comment: 25 pages, 6 figures Corrected some typos. Extended bibliography. Paper restructured, Main theorem (Theorem 4.1) improved. Proof of Theorem 4.3 amende

Jets in Effective Theory: Summing Phase Space Logs

We demonstrate how to resum phase space logarithms in the Sterman-Weinberg (SW) dijet decay rate within the context of Soft Collinear Effective theory (SCET). An operator basis corresponding to two and three jet events is defined in SCET and renormalized. We obtain the RGE of the two and three jet operators and run the operators from the scale $\mu^2 = Q^2$ to the phase space scale $\mu^2_\delta = \delta^2 Q^2$. This phase space scale, where $\delta$ is the cone half angle of the jet, defines the angular region of the jet. At $\mu^2_{\delta}$ we determine the mixing of the three and two jet operators. We combine these results with the running of the two jet shape function, which we run down to an energy cut scale $\mu^2_{\beta}$. This defines the resumed SW dijet decay rate in the context of SCET. The approach outlined here demonstrates how to establish a jet definition in the context of SCET. This allows a program of systematically improving the theoretical precision of jet phenomenology to be carried out.Comment: 25 pages, 4 figures, V2: Typos fixed, writing clarified, detail on PSRG added. Matching onto jet definition changed to taking place at collinear scal

Drift dependence of optimal trade execution strategies under transient price impact

We give a complete solution to the problem of minimizing the expected liquidity costs in presence of a general drift when the underlying market impact model has linear transient price impact with exponential resilience. It turns out that this problem is well-posed only if the drift is absolutely continuous. Optimal strategies often do not exist, and when they do, they depend strongly on the derivative of the drift. Our approach uses elements from singular stochastic control, even though the problem is essentially non-Markovian due to the transience of price impact and the lack in Markovian structure of the underlying price process. As a corollary, we give a complete solution to the minimization of a certain cost-risk criterion in our setting

A generalization of the rational rough Heston approximation

We extend the rational approximation of the solution of the rough Heston fractional ODE in [GR19] to the case of the Mittag-Leffler kernel. We provide numerical evidence of the convergence of the solution