{"title":"On the Guyon–Lekeufack volatility model","authors":"Marcel Nutz, Andrés Riveros Valdevenito","doi":"10.1007/s00780-024-00544-2","DOIUrl":null,"url":null,"abstract":"<p>Guyon and Lekeufack (Quant. Finance 23:1221–1258, 2023) recently proposed a path-dependent volatility model and documented its excellent performance in fitting market data and capturing stylised facts. The instantaneous volatility is modelled as a linear combination of two processes; one is an integral of weighted past price returns and the other is the square root of an integral of weighted past squared volatility. Each weighting is built using two exponential kernels reflecting long and short memory. Mathematically, the model is a coupled system of four stochastic differential equations. Our main result is the wellposedness of this system: the model has a unique strong (non-explosive) solution for all parameter values. We also study the positivity of the resulting volatility process and the martingale property of the associated exponential price process.</p>","PeriodicalId":50447,"journal":{"name":"Finance and Stochastics","volume":null,"pages":null},"PeriodicalIF":1.1000,"publicationDate":"2024-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Finance and Stochastics","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1007/s00780-024-00544-2","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Guyon and Lekeufack (Quant. Finance 23:1221–1258, 2023) recently proposed a path-dependent volatility model and documented its excellent performance in fitting market data and capturing stylised facts. The instantaneous volatility is modelled as a linear combination of two processes; one is an integral of weighted past price returns and the other is the square root of an integral of weighted past squared volatility. Each weighting is built using two exponential kernels reflecting long and short memory. Mathematically, the model is a coupled system of four stochastic differential equations. Our main result is the wellposedness of this system: the model has a unique strong (non-explosive) solution for all parameter values. We also study the positivity of the resulting volatility process and the martingale property of the associated exponential price process.
期刊介绍：
The purpose of Finance and Stochastics is to provide a high standard publication forum for research
- in all areas of finance based on stochastic methods
- on specific topics in mathematics (in particular probability theory, statistics and stochastic analysis) motivated by the analysis of problems in finance.
Finance and Stochastics encompasses - but is not limited to - the following fields:
- theory and analysis of financial markets
- continuous time finance
- derivatives research
- insurance in relation to finance
- portfolio selection
- credit and market risks
- term structure models
- statistical and empirical financial studies based on advanced stochastic methods
- numerical and stochastic solution techniques for problems in finance
- intertemporal economics, uncertainty and information in relation to finance.
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