Long-term and blow-up behaviors of exponential moments in multi-dimensional affine diffusions

DOI10.1016/J.SPA.2012.05.007zbMATH Open1256.60025arXiv1010.2865OpenAlexW3122498348MaRDI QIDQ436302FDOQ436302

Authors: Rudra P. Jena, Kyoung-Kuk Kim, Hao Xing 

Publication date: 20 July 2012

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

Abstract: This paper considers multi-dimensional affine processes with continuous sample paths. By analyzing the Riccati system, which is associated with affine processes via the transform formula, we fully characterize the regions of exponents in which exponential moments of a given process do not explode at any time or explode at a given time. In these two cases, we also compute the long-term growth rate and the explosion rate for exponential moments. These results provide a handle to study implied volatility asymptotics in models where returns of stock prices are described by affine processes whose exponential moments do not have an explicit formula.

Full work available at URL: https://arxiv.org/abs/1010.2865

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zbMATH Keywords

exponential momentsimplied volatilityaffine diffusionsRiccati differential equations

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Diffusion processes (60J60) Financial applications of other theories (91G80)

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Cited In (14)

• Large deviations for affine diffusion processes on \(\mathbb R_+^m \times\mathbb R^n\)
• Ergodicity of affine processes on the cone of symmetric positive semidefinite matrices
• Affine diffusion processes: theory and applications
• Affine diffusions with non-canonical state space
• Exponentially affine martingales, affine measure changes and exponential moments of affine processes
• Stationarity and ergodicity for an affine two-factor model
• On parameter estimation for critical affine processes
• Moment explosions and stationary distributions in affine diffusion models
• Existence of limiting distribution for affine processes
• Capital income jumps and wealth distribution
• Explosion time for some Laplace transforms of the Wishart process
• Exponential moments of affine processes
• Stochastic equation and exponential ergodicity in Wasserstein distances for affine processes
• Moment explosions and long-term behavior of affine stochastic volatility models

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