medium · Quantitative Finance derivatives
If ρ = 0 and ξ > 0 in a Heston model, what is the shape of the implied volatility surface?
- A symmetric 'smile' with the minimum at-the-money.
- A flat line, i.e. constant volatility across strikes.
- An upward-sloping skew rising toward higher strikes.
- A downward-sloping skew falling toward higher strikes.
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