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2026-09-04 12:11 UTC · q-fin.MF · q-fin.MF

Gatheral's Conjecture Revisited

Vladimir Lucic

We compare the Heston model with $ρ=-1$ to the one-dimensional local-volatility model calibrated to the same European option prices. We show that, for each fixed expiry $T>0$, their integrated variances satisfy \[ I_T^{\mathrm H}\prec_{\mathrm{cx}} I_T^{\mathrm{LV}}. \] This strict ordering gives a Heston-model counterexample to the convex-order inequality conjectured by J.\ Gatheral
arXiv abstractPDF

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