New Heston model captures short-dated option skews

Key facts

• A new quadratic rough HestonC (QRHC) model has been introduced.
• The QRHC model extends the quadratic rough Heston model.
• It captures extreme skews and curvatures of short-dated S&P 500 options.
• The model includes zero-days-to-expiry options.

Researchers have introduced the quadratic rough HestonC (QRHC) model, an extension of the quadratic rough Heston model. This new model is designed to replicate the extreme skews and curvatures observed in short-dated S&P 500 options, including those with zero days to expiry. The QRHC model achieves this by incorporating a single path-dependent boosting term.