Large deviations for some fast stochastic volatility models by viscosity methods
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Derivative securities (option pricing, hedging, etc.) (91G20) Large deviations (60F10) Singular perturbations in context of PDEs (35B25) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Time-scale analysis and singular perturbations in control/observation systems (93C70)
Abstract: We consider the short time behaviour of stochastic systems affected by a stochastic volatility evolving at a faster time scale. We study the asymptotics of a logarithmic functional of the process by methods of the theory of homogenisation and singular perturbations for fully nonlinear PDEs. We point out three regimes depending on how fast the volatility oscillates relative to the horizon length. We prove a large deviation principle for each regime and apply it to the asymptotics of option prices near maturity.
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Cited in
(18)- Small-time asymptotics for fast mean-reverting stochastic volatility models
- Large deviation principles for stochastic volatility models with reflection
- Precise asymptotics: robust stochastic volatility models
- Large-time asymptotics for an uncorrelated stochastic volatility model
- Asymptotics for multifactor Volterra type stochastic volatility models
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- Fast mean-reversion asymptotics for large portfolios of stochastic volatility models
- Viscosity methods for large deviations estimates of multiscale stochastic processes
- Comparison principle for Hamilton-Jacobi-Bellman equations via a bootstrapping procedure
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- Long-Time Trajectorial Large Deviations and Importance Sampling for Affine Stochastic Volatility Models
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