Stochastic volatility jump
In mathematical finance, the stochastic volatility jump (SVJ) model is suggested by Bates. This model fits the observed implied volatility surface well. The model is a Heston process with an added Merton log-normal jump.
The model assumes the following correlated processes:
[where S = Price of Security, μ = constant drift (i.e. expected return), t = time, Z1 = Standard Brownian Motion etc.]
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