Analytical Formula for Conditional Moments of Extended Heston-CEV Hybrid Model with Time-dependent Parameters
Promsiri Anunak, Petarpa Boonserm and Udomsak Rakwongwan* Author for corresponding; e-mail address: praew7572@gmail.com
Volume: Vol.50 No.3 (May 2023)
Research Article
DOI: https://doi.org/10.12982/CMJS.2023.022
Received: 4 November 2022, Revised: 30 December 2022, Accepted: 26 January 2023, Published: -
Citation: Anunak P., Boonserm P. and Rakwongwan U., Analytical Formula for Conditional Moments of Extended Heston-CEV Hybrid Model with Time-dependent Parameters, Chiang Mai Journal of Science, 2023; 50(3): e2023022. DOI 10.12982/CMJS.2023.022.
Abstract
This paper proposes an analytical formula for conditional moments of the extended Heston-CEV hybrid model, where the underlying asset dynamic is formed under the hybrid framework of a constant elasticity of variance (CEV) process that is the March–Rosenfeld process. The formula is received by successfully solving the partial differential equation corresponding to the infinitesimal generator for two-dimensional process. The formula obtained is easy to use in practice and relatively more general compared with the currently existing results in the literature. In addition, numerical validations are conducted to illustrate the accuracy of our analytical formula by comparing the results gained from the Monte Carlo (MC) simulations.