2019/06/26 by Benth, Fred Espen, Lavagnini, Silvia · 1 citation
#Computational Finance (q-fin.CP) #FOS: Economics and business #FOS: Mathematics #Mathematical Finance (q-fin.MF) #Probability (math.PR) #Statistics Theory (math.ST)
paper · doi:10.48550/arxiv.1906.11320
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.