hard · Quantitative Finance

The Feller condition 2κθ ≥ ξ² in the Heston stochastic volatility model is critical for which numerical reason?

1. It guarantees that the stock price cannot drop below zero.
2. It ensures the implied volatility smile is symmetric around the at-the-money strike.
3. It prevents the variance process v_t from reaching zero, ensuring it remains strictly positive.
4. It is required for the existence of a closed-form solution for the characteristic function.

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