Distribution of Returns in the Heston Model

David Mandel (FSU)

Time: 3:35 pm, Room: LOV 201

Abstract: Empirical log stock returns exhibit leptokurtic distributions, deviating from the Black-Scholes framework. An alternative is the Heston model, which, although has been shown to better describe option prices, the implied returns distribution is not explicit in the model. We'll summarize some results suggesting the distribution may be broken into two regimes depending on the relative size of the returns.