Discretely sampled signals and the rough Hoff process

DOI10.1016/J.SPA.2016.02.011MaRDI QIDQ737171zbMATH OpenOpenAlexFDO

Authors Guy Flint, Ben M. Hambly, Terence J. Lyons

Publication date 8 August 2016

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1310.4054

Hoff process Itō-Stratonovich correction lead-lag path rough path theory Wong-Zakai approximations

Sample path properties (60G17) Signal detection and filtering (aspects of stochastic processes) (60G35) Martingales with continuous parameter (60G44) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

Abstract: We introduce a canonical method for transforming a discrete sequential data set into an associated rough path made up of lead-lag increments. In particular, by sampling a

d

-dimensional continuous semimartingale

X : [0, 1] i g h t a r r o w m a t h b b R^{d}

at a set of times

D = (t_{i})

, we construct a piecewise linear, axis-directed process

X^{D} : [0, 1] i g h t a r r o w m a t h b b R^{2 d}

comprised of a past and future component. We call such an object the Hoff process associated with the discrete data

{X_{t}}_{t_{i} i n D}

. The Hoff process can be lifted to its natural rough path enhancement and we consider the question of convergence as the sampling frequency increases. We prove that the It^{o} integral can be recovered from a sequence of random ODEs driven by the components of

X^{D}

. This is in contrast to the usual Stratonovich integral limit suggested by the classical Wong-Zakai Theorem. Such random ODEs have a natural interpretation in the context of mathematical finance.

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