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arXiv · 2412.16009

Universal approximation on non-geometric rough paths and applications to financial derivatives pricing

Fabian A. Harang·Fred Espen Benth·Fride Straum
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Abstract

We present a novel perspective on the universal approximation theorem for rough path functionals, introducing a polynomial-based approximation class. We extend universal approximation to non-geometric rough paths within the tensor algebra. This development addresses critical needs in finance, where no-arbitrage conditions necessitate It\^o integration. Furthermore, our findings motivate a hypothesis for payoff functionals in financial markets, allowing straightforward analysis of signature payoffs proposed in \cite{arribas2018derivativespricingusingsignature}.

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Fabian A. Harang, Fred Espen Benth, Fride Straum. 2024-12-20. Universal approximation on non-geometric rough paths and applications to financial derivatives pricing. https://arxiv.org/abs/2412.16009

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