Time-inhomogeneous polynomial processes

DOI10.1080/07362994.2019.1703742zbMATH Open1443.60071arXiv1806.03887OpenAlexW2996969007WikidataQ126431745 ScholiaQ126431745MaRDI QIDQ5113867FDOQ5113867

Author name not available (Why is that?)

Publication date: 18 June 2020

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

Abstract: Time homogeneous polynomial processes are Markov processes whose moments can be calculated easily through matrix exponentials. In this work, we develop a notion of time inhomogeneous polynomial processes where the coeffiecients of the process may depend on time. A full characterization of this model class is given by means of their semimartingale characteristics. We show that in general, the computation of moments by matrix exponentials is no longer possible. As an alternative we explore a connection to Magnus series for fast numerical approximations. Time-inhomogeneity is important in a number of applications: in term-structure models, this allows a perfect calibration to available prices. In electricity markets, seasonality comes naturally into play and have to be captured by the used models. The model class studied in this work extends existing models, for example Sato processes and time-inhomogeneous affine processes.

Full work available at URL: https://arxiv.org/abs/1806.03887

zbMATH Keywords

seasonalityMagnus seriesaffine processestime-inhomogeneous Markov processesevolution systemspolynomial processes

Mathematics Subject Classification ID

Continuous-time Markov processes on general state spaces (60J25) Stochastic models in economics (91B70)

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Cited In (6)

• Bin sizes in time-inhomogeneous infinite Polya processes
• Infinitesimal generators for a family of polynomial processes -- an algebraic approach
• New challenges in the interplay between finance and insurance. Abstracts from the workshop held October 1--6, 2023
• Time-inhomogeneous affine processes
• Time-dependent generalized polynomial chaos
• Markov-modulated affine processes

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