Abstract
This note identifies a gap in the proof of Corollary 2.4 in Forde and Jacquier (Finance Stoch., 2011) which arises because the essential smoothness of the family (X t /t) t≥1 can fail for the log-spot process X in the Heston model, and it describes how to circumvent the issue by applying a standard argument from large deviation theory.
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References
Dembo, A., Zeitouni, O.: Large Deviations Techniques and Applications, 2nd edn. Springer, New York (1998)
Forde, M., Jacquier, A.: The large-maturity smile for the Heston model. Finance Stoch. (2011, to appear). doi:10.1007/s00780-010-0147-3
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Forde, M., Jacquier, A. & Mijatović, A. A note on essential smoothness in the Heston model. Finance Stoch 15, 781–784 (2011). https://doi.org/10.1007/s00780-011-0162-z
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DOI: https://doi.org/10.1007/s00780-011-0162-z