A theoretical analysis of Guyon's toy volatility model

Ofelia Bonesini, Antoine Jacquier and Chloé Lacombe

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We provide a thorough analysis of the path-dependent volatility model introduced by Guyon [30], proving existence and uniqueness of a strong solution, characterising its behaviour at boundary points, providing asymptotic closed-form option prices as well as deriving small-time behaviour estimates.

Keywords: path-dependent volatility; large deviations; boundary classification; ergodicity; implied volatility (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2025-06-30
New Economics Papers: this item is included in nep-rmg
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Published in SIAM Journal on Financial Mathematics, 30, June, 2025, 16(2), pp. 271 - 309. ISSN: 1945-497X

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:127342

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