Correlators of Polynomial Processes

Fred Espen Benth; Silvia Lavagnini

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arXiv · 1906.11320

Correlators of Polynomial Processes

Fred Espen Benth·Silvia Lavagnini

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Abstract

In the setting of polynomial jump-diffusion dynamics, we provide an explicit formula for computing correlators, namely, cross-moments of the process at different time points along its path. The formula appears as a linear combination of exponentials of the generator matrix, extending the well-known moment formula for polynomial processes. The developed framework can, for example, be applied in financial pricing, such as for path-dependent options and in a stochastic volatility models context. In applications to options, having closed and compact formulations is attractive for sensitivity analysis and risk management, since Greeks can be derived explicitly.

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BibTeX RIS

Fred Espen Benth, Silvia Lavagnini. 2019-06-26. Correlators of Polynomial Processes. https://arxiv.org/abs/1906.11320

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