Paper #880

Title:

A note on the Malliavin differentiability of the Heston volatility

Authors:

Elisa Alòs and Christian-Olivier Ewald

Date:

August 2005

Abstract:

We show that the Heston volatility or equivalently the Cox-Ingersoll-Ross process is Malliavin differentiable and give an explicit expression for the derivative. This result assures the applicability of Malliavin calculus in the framework of the Heston stochastic volatility model and the Cox-Ingersoll-Ross model for interest rates.

Keywords:

Malliavin calculus, stochastic volatility models, Heston model, Cox-Ingersoll-Ross process

JEL codes:

G12, G19, C19, E43

Area of Research:

Statistics, Econometrics and Quantitative Methods

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