Linking Path-Dependent and Stochastic Volatility Models
Mathematical Finance
2025-10-03 v1
Abstract
We explore a link between stochastic volatility (SV) and path-dependent volatility (PDV) models. Using assumed density filtering, we map a given SV model into a corresponding PDV representation. The resulting specification is lightweight, improves in-sample fit, and delivers robust out-of-sample forecasts. We also introduce a calibration procedure for both SV and PDV models that produces standard errors for parameter estimates and supports joint calibration of SPX/VIX smile.
Cite
@article{arxiv.2510.02024,
title = {Linking Path-Dependent and Stochastic Volatility Models},
author = {Samuel N. Cohen and Cephas Svosve},
journal= {arXiv preprint arXiv:2510.02024},
year = {2025}
}