Stochastic PDEs for large portfolios with general mean-reverting volatility processes
From MaRDI portal
Publication:6504185
arXiv1906.05898MaRDI QIDQ6504185FDOQ6504185
Authors: Ben M. Hambly, Nikolaos Kolliopoulos 
Abstract: In this article we consider a structural stochastic volatility model for the loss from a large portfolio. Both the asset value and the volatility processes are correlated through systemic Brownian motions, and the second ones are picked from a class of general mean-reverting diffusions. We prove that our system converges as the portfolio becomes large and, when the vol-of-vol function satisfies certain regularity and boundedness conditions, the limit of the empirical measure process has a density given in terms of a solution to a stochastic initial-boundary value problem on a half-space. The problem is defined in a special weighted Sobolev space. A good regularity result is established for solutions to this problem, and then we show that there exists a unique solution. In contrast to the CIR volatility setting covered by the existing literature, our results hold even when the systemic Brownian motions are taken to be correlated.
Stochastic calculus of variations and the Malliavin calculus (60H07) Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Financial applications of other theories (91G80)
This page was built for publication: Stochastic PDEs for large portfolios with general mean-reverting volatility processes
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6504185)
