From an analysis of the time series of volatility using recent high frequency data, Gatheral, Jaisson and Rosenbaum previously showed that log-volatility behaves essentially as a fractional Brownian motion with Hurst exponent H of order 0.1, at any reasonable time scale. The resulting Rough...

This work is concerned with forest and cumulant type expansions of general random variables on a filtered probability spaces. We establish a “broken exponential martingale” expansion that generalizes and unifies the exponentiation result of Alòs, Gatheral, and Radoičić ́ (SSRN'17; [AGR20])...

We discuss the possibility of obtaining model-free bounds on volatility derivatives, given present market data in the form of a calibrated local volatility model. A counter-example to a wide-spread conjecture is given.

Cubature methods, a powerful alternative to Monte Carlo due to Kusuoka~[Adv.~Math.~Econ.~6, 69--83, 2004] and Lyons--Victoir~[Proc.~R.~Soc.\\Lond.~Ser.~A 460, 169--198, 2004], involve the solution to numerous auxiliary ordinary differential equations. With focus on the Ninomiya-Victoir...

The state price density of a basket, even under uncorrelated Black-Scholes dynamics, does not allow for a closed from density. (This may be rephrased as statement on the sum of lognormals and is especially annoying for such are used most frequently in Financial and Actuarial Mathematics.) In...

Motivated by marginals-mimicking results for It\^o processes via SDEs and by their applications to volatility modeling in finance, we discuss the weak convergence of the law of a hypoelliptic diffusions conditioned to belong to a target affine subspace at final time, namely $\mathcal{L}(Z_t|Y_t...

A robust implementation of a Dupire type local volatility model is an important issue for every option trading floor. Typically, this (inverse) problem is solved in a two step procedure : (i) a smooth parametrization of the implied volatility surface; (ii) computation of the local volatility based...

There are several (mathematical) reasons why Dupire's formula fails in the non-diffusion setting. And yet, in practice, ad-hoc preconditioning of the option data works reasonably well. In this note we attempt to explain why. In particular, we propose a regularization procedure of the option data...

We consider call option prices in diffusion models close to expiry, in an asymptotic regime ("moderately out of the money") that interpolates between the well-studied cases of at-the-money options and out-of-the-money fixed-strike options. First and higher order small-time moderate deviation...

Stochastic Volatility Models (SVMs) are ubiquitous in quantitative finance. But is there a Markovian SVM capable of producing extreme (T^(-1/2)) short-dated implied volatility skew?We here propose a modification of a given SVM "backbone", Heston for instance, to achieve just this - without...