Correlators of Polynomial Processes

Fred Espen Benth and Silvia Lavagnini

Papers from arXiv.org

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.

Date: 2019-06, Revised 2021-04
New Economics Papers: this item is included in nep-ore
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