Inhomogeneous affine Volterra processes

DOI10.1016/J.SPA.2022.04.011MaRDI QIDQ2145777zbMATH OpenOpenAlexFDO

Authors Julia Ackermann, Thomas Kruse, L. Overbeck

Publication date 20 June 2022

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

Full work available at URL https://arxiv.org/abs/2012.10966

zbMATH Keywords

Heston modelinhomogeneous Riccati-Volterra integral equation

Mathematics Subject Classification ID

Fractional processes, including fractional Brownian motion (60G22) Stochastic integral equations (60H20)

Abstract: We extend recent results on affine Volterra processes to the inhomogeneous case. This includes moment bounds of solutions of Volterra equations driven by a Brownian motion with an inhomogeneous kernel $K(t,s)$ and inhomogeneous drift and diffusion coefficients $b(s,X_s)$ and $sigma(s,X_s)$. In the case of affine $b$ and $sigmasigm{a}^T$ we show how the conditional Fourier-Laplace functional can be represented by a solution of an inhomogeneous Riccati-Volterra integral equation. For a kernel of convolution type $K(t,s)=overlineK(t-s)$ we establish existence of a solution to the stochastic inhomogeneous Volterra equation. If in addition $b$ and $sigmasigm{a}^T$ are affine, we prove that the conditional Fourier-Laplace functional is exponential-affine in the past path. Finally, we apply these results to an inhomogeneous extension of the rough Heston model used in mathematical finance.

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Cited in

(7)

• Implied roughness in the term structure of oil market volatility
• The Laplace transform of the integrated Volterra Wishart process
• Affine Volterra processes
• Markovian lifts of positive semidefinite affine Volterra-type processes
• Weak existence and uniqueness for affine stochastic Volterra equations with \(L^1\)-kernels
• Affine Volterra processes with jumps
• Infinite dimensional pathwise Volterra processes driven by Gaussian noise -- probabilistic properties and applications --

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