Correlators of Polynomial Processes
Probability
2021-04-26 v3 Statistics Theory
Computational Finance
Mathematical Finance
Statistics Theory
Abstract
In the setting of polynomial jump-diffusion dynamics, we provide an explicit formula for computing correlators, namely, cross-moments of the process at different time points along its path. The formula appears as a linear combination of exponentials of the generator matrix, extending the well-known moment formula for polynomial processes. The developed framework can, for example, be applied in financial pricing, such as for path-dependent options and in a stochastic volatility models context. In applications to options, having closed and compact formulations is attractive for sensitivity analysis and risk management, since Greeks can be derived explicitly.
Keywords
Cite
@article{arxiv.1906.11320,
title = {Correlators of Polynomial Processes},
author = {Fred Espen Benth and Silvia Lavagnini},
journal= {arXiv preprint arXiv:1906.11320},
year = {2021}
}