Bates Model


Bates Model is a direct subtype of Model[Spot Price]
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with functions Bates Model Functions, keys Bates Model keys and example object BatesMdl

TYPE INCLUSION RELATIONSHIPS

Model Spot Price

Bates Model

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AVAILABLE FUNCTIONS

Create

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AVAILABLE CREATE FUNCTION KEYS

Heston Model

Jump Intensity

Mean Log Jump Factor

Vol Log Jump Factor

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TYPICAL OBJECTS OF TYPE Bates Model

BatesMdl

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This type represents the Bates volatility model (1996) whereby the price S of an underlying asset is modelled as a four-factor jump-diffusion process that follows the SDE:
dS = dH + JSdN
where
H is the Heston process described in Heston Model, albeit with its drift adjusted to compensate for the existence of the jumps.
N is a poisson process with a constant intensity Ξ»
J is a random variable representing the relative jump size Γ„S/S := (S'-S)/S, where S' is the underlying price right after a jump, is distributed in such a way that the logarithm of the "jump factor"S'/S = 1+J is normally distributed.
Formally: log(1+J) ~ N(ν,δ²)
where N(ν,δ²) denotes the standard normal distribution with mean ν and standard deviation δ. Web reference available here