Measure-valued affine and polynomial diffusions

Christa Cuchiero, Francesco Guida, Luca di Persio and Sara Svaluto-Ferro

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Abstract: We introduce a class of measure-valued processes, which -- in analogy to their finite dimensional counterparts -- will be called measure-valued polynomial diffusions. We show the so-called moment formula, i.e.~a representation of the conditional marginal moments via a system of finite dimensional linear PDEs. Furthermore, we characterize the corresponding infinitesimal generators and obtain a representation analogous to polynomial diffusions on $\mathbb{R}^m_+$, in cases where their domain is large enough. In general the infinite dimensional setting allows for richer specifications strictly beyond this representation. As a special case we recover measure-valued affine diffusions, sometimes also called Dawson-Watanabe superprocesses. From a mathematical finance point of view the polynomial framework is especially attractive as it allows to transfer the most famous finite dimensional models, such as the Black-Scholes model, to an infinite dimensional measure-valued setting. We outline in particular the applicability of our approach for term structure modeling in energy markets.

Date: 2021-12
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2112.15129

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