Gaussian stochastic volatility models: scaling regimes, large deviations, and moment explosions

DOI10.1016/J.SPA.2019.10.005MaRDI QIDQ2175333zbMATH OpenOpenAlexWikidataFDO

Authors Archil Gulisashvili

Publication date 29 April 2020

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

Full work available at URL https://arxiv.org/abs/1808.00421

zbMATH Keywords

central limit regimeGaussian stochastic volatility modelsimplied volatility asymptoticsmoment explosionssample path large and moderate deviationsVolterra type models

Mathematics Subject Classification ID

Asymptotic approximations, asymptotic expansions (steepest descent, etc.) (41A60) Large deviations (60F10) Gaussian processes (60G15) Self-similar stochastic processes (60G18) Fractional processes, including fractional Brownian motion (60G22) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: In this paper, we establish sample path large and moderate deviation principles for log-price processes in Gaussian stochastic volatility models, and study the asymptotic behavior of exit probabilities, call pricing functions, and the implied volatility. In addition, we prove that if the volatility function in an uncorrelated Gaussian model grows faster than linearly, then, for the asset price process, all the moments of order greater than one are infinite. Similar moment explosion results are obtained for correlated models.

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Cited in

(13)

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• Time-inhomogeneous Gaussian stochastic volatility models: large deviations and super roughness
• Large deviations for fractional volatility models with non-Gaussian volatility driver
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