Polynomial diffusions and applications in finance
From MaRDI portal
Abstract: This paper provides the mathematical foundation for polynomial diffusions. They play an important role in a growing range of applications in finance, including financial market models for interest rates, credit risk, stochastic volatility, commodities and electricity. Uniqueness of polynomial diffusions is established via moment determinacy in combination with pathwise uniqueness. Existence boils down to a stochastic invariance problem that we solve for semialgebraic state spaces. Examples include the unit ball, the product of the unit cube and nonnegative orthant, and the unit simplex.
The article analyzes diffusions with polynomial drift and diffusion matrix of degrees at most 1 and 2 resp., evolving in semi-algebraic sets defined by polynomial inequalities. The main result is well-posedness of the solution and conditions for a non-sticky boundary. Specific instances of the state space given by certain quadric sets, product of the unit cube and non-negative orthant, or the unit simplex, are further analyzed. Applications to finance are also described.
Recommendations
Cites work
- A chaotic representation property of the multidimensional Dunkl processes
- A class of degenerate diffusion processes occurring in population genetics
- A comparison of biased simulation schemes for stochastic volatility models
- A general version of the fundamental theorem of asset pricing
- A Note on the Theory of Moment Generating Functions
- A remark on the multidimensional moment problem
- A survey and some generalizations of Bessel processes
- Affine diffusions with non-canonical state space
- An interest rate model with upper and lower bounds
- Density approximations for multivariate affine jump-diffusion processes
- DIFFUSION MODELS FOR EXCHANGE RATES IN A TARGET ZONE
- scientific article; zbMATH DE number 431550 (Why is no real title available?)
- scientific article; zbMATH DE number 3780265 (Why is no real title available?)
- scientific article; zbMATH DE number 3571224 (Why is no real title available?)
- scientific article; zbMATH DE number 1201576 (Why is no real title available?)
- scientific article; zbMATH DE number 1245556 (Why is no real title available?)
- scientific article; zbMATH DE number 739283 (Why is no real title available?)
- scientific article; zbMATH DE number 1047451 (Why is no real title available?)
- scientific article; zbMATH DE number 1970438 (Why is no real title available?)
- scientific article; zbMATH DE number 2107988 (Why is no real title available?)
- scientific article; zbMATH DE number 3894218 (Why is no real title available?)
- scientific article; zbMATH DE number 3219899 (Why is no real title available?)
- scientific article; zbMATH DE number 3226563 (Why is no real title available?)
- scientific article; zbMATH DE number 2237386 (Why is no real title available?)
- scientific article; zbMATH DE number 3186324 (Why is no real title available?)
- scientific article; zbMATH DE number 3111121 (Why is no real title available?)
- Invariance of stochastic control systems with deterministic arguments
- Invariant manifolds with boundary for jump-diffusions
- Krein condition in probabilistic moment problems
- Matrix Analysis
- Mean stochastic comparison of diffusions
- Multivariate distributions and the moment problem
- Multivariate Jacobi process with application to smooth transitions
- On strong solutions for positive definite jump diffusions
- On the hedging of options on exploding exchange rates
- On the relation between linearity-generating processes and linear-rational models
- On the relation between the multidimensional moment problem and the one-dimensional moment problem.
- On the Uniqueness in Law and the Pathwise Uniqueness for Stochastic Differential Equations
- Polynomial processes and their applications to mathematical finance
- Stochastic viability of convex sets
- The K-moment problem for compact semi-algebraic sets
- The Pearson Diffusions: A Class of Statistically Tractable Diffusion Processes
Cited in
(69)- Polynomial jump-diffusions on the unit simplex
- A general framework for time-changed Markov processes and applications
- Dependent defaults and losses with factor copula models
- The Jacobi stochastic volatility model
- Replicating portfolio approach to capital calculation
- Affine processes with compact state space
- Markov cubature rules for polynomial processes
- Stochastic invariance of closed sets with non-Lipschitz coefficients
- Polynomial processes in stochastic portfolio theory
- Infinite-dimensional polynomial processes
- Semi-implicit Euler-Maruyama scheme for polynomial diffusions on the unit ball
- Fast calibration of the libor market model with stochastic volatility and displaced diffusion
- A consistent stochastic model of the term structure of interest rates for multiple tenors
- On uniqueness of solutions to martingale problems -- counterexamples and sufficient criteria
- Asset prices in segmented and integrated markets
- Infinite dimensional affine processes
- Valuation of electricity storage contracts using the COS method
- Linear credit risk models
- Structural properties of the seed bank and the two island diffusion
- Polynomial diffusion models for life insurance liabilities
- Probability measure-valued polynomial diffusions
- Cointegration in continuous time for factor models
- Pricing variance swaps under subordinated Jacobi stochastic volatility models
- Jacobi stochastic volatility factor for the LIBOR market model
- Affine diffusions with non-canonical state space
- scientific article; zbMATH DE number 1064802 (Why is no real title available?)
- Algebraic structure of vector fields in financial diffusion models and its applications
- Quantization goes polynomial
- Polynomial term structure models
- Correlators of polynomial processes
- Pricing Asian options with correlators
- Independent increment processes: a multilinearity preserving property
- Polynomial diffusions on compact quadric sets
- Time-inhomogeneous polynomial processes
- Polynomial jump-diffusion models
- A multifactor polynomial framework for long-term electricity forwards with delivery period
- Transformations of Markov processes and classification scheme for solvable driftless diffusions
- Polynomial processes for power prices
- Asian option pricing with orthogonal polynomials
- Dynamical polynomial chaos expansions and long time evolution of differential equations with random forcing
- Linear stochastic dividend model
- Matrix calculations for moments of Markov processes
- Signature-Based Models: Theory and Calibration
- Risk‐neutral pricing techniques and examples
- Discount models
- Evaluation of integrals with fractional Brownian motion for different Hurst indices
- Model‐free portfolio theory: A rough path approach
- Scaling limits of bisexual Galton–Watson processes
- Log-normal stochastic volatility model with quadratic drift
- Universal structures in mathematical finance
- Controlled measure-valued martingales: a viscosity solution approach
- Open markets and hybrid Jacobi processes
- Measure-valued affine and polynomial diffusions
- Abstract polynomial processes
- Multi-factor polynomial diffusion models and inter-temporal futures dynamics
- Joint calibration to SPX and VIX options with signature-based models
- Moments of generalized fractional polynomial processes
- Ramifications of generalized Feller theory
- Asset pricing with consumption-dividend cointegration
- Holomorphic jump-diffusions
- A new algorithm for computing the exponential of a block triangular matrix
- Polynomial processes and their applications to mathematical finance
- Joint mortality models based on subordinated linear hypercubes
- Measure-valued processes for energy markets
- Polynomial Volterra processes
- Joint deep calibration of the 4-factor PDV model
- Signature SDEs from an affine and polynomial perspective
- Parameter estimation for partially observed affine and polynomial processes
- Optimal linear filtering of partially observed polynomial processes in discrete and continuous time
This page was built for publication: Polynomial diffusions and applications in finance
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q331360)
