Heston Model: What the Square Root Bought and What It Cost

Wed, 30 Sep 2026 00:00:00 +0000

Why This Matters

The local vol model we discussed in the previous article assumes the vol is a deterministic function of spot and time, so the vol has no randomness of its own. But the market does not treat vol that way. The VIX is the market’s implied vol for SPX, and options on the VIX are themselves quoted with an implied vol, a vol of vol. The market is pricing vol itself as a random quantity.

Stochastic Volatility on Inflection Quant

Heston Model: What the Square Root Bought and What It Cost

Why This Matters