Scaling limits of processes with fast nonlinear mean reversion

DOI10.1016/J.SPA.2019.06.008MaRDI QIDQ1986011zbMATH OpenOpenAlexWikidataFDO

Authors Thomas Cayé, Martin Herdegen, Johannes Muhle-Karbe

Publication date 7 April 2020

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

Full work available at URL https://arxiv.org/abs/1710.11202, http://wrap.warwick.ac.uk/122281/1/WRAP-Scaling-processes-fast-nonlinear-mean-reversion-Herdegen-2019.pdf

zbMATH Keywords

processes with fast nonlinear mean reversionscaling limits

Mathematics Subject Classification ID

(L^p)-limit theorems (60F25) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

Abstract: We derive scaling limits for integral functionals of It^o processes with fast nonlinear mean-reversion speed. We show that in these limits, the fast mean-reverting process is "averaged out" by integrating against its invariant measure. These convergence results hold uniformly in probability and, under mild integrability conditions, also in $mathcal{S}^p$. They are a crucial building block for the analysis of portfolio choice models with small superlinear transaction costs, carried out in the companion paper of the present study.

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Cited in

(3)

• Large time and small noise asymptotic results for mean reverting diffusion processes with applications
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• Asset pricing with general transaction costs: Theory and numerics

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