Exercise: Heston Stochastic Volatility: stress interpretation
Prerequisites: Heston Stochastic Volatility
Problem
- State the relevant definition for variance follows a CIR process so volatility can mean-revert and correlate with spot.
- Apply it to a small numerical or symbolic example of your choice.
- Explain which convention or modelling assumption is doing the most work.
Hint
Jump to the solution when you are ready.