medium · Quantitative Finance derivatives
A Heston stochastic volatility model is calibrated with parameters κ = 1.5, θ = 0.04, and ξ = 0.45.
Does this parameter set satisfy the Feller condition, and what is the implication for the variance process v_t?
- No, it violates the condition; the variance v_t can touch zero.
- Yes, it satisfies the condition; the stock price is guaranteed to be lognormal.
- Yes, it satisfies the condition; the variance v_t stays strictly positive.
- No, it violates the condition; the variance v_t will eventually drift to infinity.
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