arXiv research

In this paper we investigate the small time heat kernel asymptotics on the cut locus on a class of surfaces of revolution, which are the simplest 2-dimensional Riemannian manifolds different from the sphere with non trivial cut-conjugate locus. We determine the degeneracy of the exponential map near a cut-conjugate poi…

We consider the class of self-similar Gaussian stochastic volatility models, and compute the small-time (near-maturity) asymptotics for the corresponding asset price density, the call and put pricing functions, and the implied volatilities. Unlike the well-known model-free behavior for extreme-strike asymptotics, small…

In this paper we study the small time asymptotics for the heat kernel on a sub-Riemannian manifold, using a perturbative approach. We then explicitly compute, in the case of a 3D contact structure, the first two coefficients of the small time asymptotics expansion of the heat kernel on the diagonal, expressing them in …

Researchers calculate entropy of heat kernel on manifolds for very small times.

The paper solves heat kernel asymptotics on non-degenerate CR manifolds.

We compute the small time asymptotic of the fundamental solution of Hörmander's type hypoelliptic operators with drift, at a stationary point, $x_0$, of the drift field. We show that the order of the asymptotic depends on the controllability of an associated control problem and of its approximating system. If the contr…

We study the small time asymptotics of the gradient and Hessian of the logarithm of the heat kernel at the cut locus, giving, in principle, complete expansions for both quantities. We relate the leading terms of the expansions to the structure of the cut locus, especially to conjugacy, and we provide a probabilistic in…

We consider the heat equation associated with a class of hypoelliptic operators of Kolmogorov-Fokker-Planck type in dimension two. We explicitly compute the first meaningful coefficient of the small time asymptotic expansion of the heat kernel on the diagonal, and we interpret it in terms of curvature-like invariants o…

Improved option pricing for SABR model using Gauss-Hermite quadrature.

We compute a sharp small-time estimate for the price of a basket call under a bi-variate SABR model with both $β$ parameters equal to $1$ and three correlation parameters, which extends the work of Bayer,Friz&Laurence [BFL14] for the multivariate Black-Scholes flat vol model. The result follows from the heat kernel on …

We study the heat trace for both the drifting Laplacian as well as Schrödinger operators on compact Riemannian manifolds. In the case of a finite regularity potential or weight function, we prove the existence of a partial (six term) asymptotic expansion of the heat trace for small times as well as a suitable remainder…

We characterize the small-time asymptotic behavior of the exit probability of a Lévy process out of a two-sided interval and of the law of its overshoot, conditionally on the terminal value of the process. The asymptotic expansions are given in the form of a first-order term and a precise computable error bound. As an …

We study the leading term in the small-time asymptotics of at-the-money call option prices when the stock price process $S$ follows a general martingale. This is equivalent to studying the first centered absolute moment of $S$. We show that if $S$ has a continuous part, the leading term is of order $\sqrt{T}$ in time $…

Motivated by marginals-mimicking results for Itô 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 $\mathcal{L}(Z_t|Y_t = y)$ if $X_{\cdot}=(Y_\cd…

We study the dynamics of the normal implied volatility in a local volatility model, using a small-time expansion in powers of maturity T. At leading order in this expansion, the asymptotics of the normal implied volatility is similar, up to a different definition of the moneyness, to that of the log-normal volatility. …

For incomplete sub-Riemannian manifolds, and for an associated second-order hypoelliptic operator, which need not be symmetric, we identify two alternative conditions for the validity of Gaussian-type upper bounds on heat kernels and transition probabilities, with optimal constant in the exponent. Under similar conditi…

Instantaneous volatility of logarithmic return in the lognormal fractional SABR model is driven by the exponentiation of a correlated fractional Brownian motion. Due to the mixed nature of driving Brownian and fractional Brownian motions, probability density for such a model is less studied in the literature. We show i…

A small-time Edgeworth expansion of the density of an asset price is given under a general stochastic volatility model, from which asymptotic expansions of put option prices and at-the-money implied volatilities follow. A limit theorem for at-the-money implied volatility skew and curvature is also given as a corollary.…

Study small-time CLTs for stochastic Volterra equations with various kernels.

Study spectral properties of sub-Riemannian Laplacians, proving quantum ergodicity and heat kernel asymptotics.

We provide a thorough analysis of the path-dependent volatility model introduced by Guyon \cite{G17}, 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.

We consider small-time asymptotics for diffusion processes conditioned by their initial and final positions, under the assumption that the diffusivity has a sub-Riemannian structure, not necessarily of constant rank. We show that, if the endpoints are joined by a unique path of minimal energy, and lie outside the sub-R…

Proves heat expansion for Laplacian on a singularity.

New tests for identifying the number of latent factors in short panels with small time dimensions.

Asymptotic expansions for call prices and implied volatilities in exponential Lévy models.

We consider the problem of portfolio optimization in a simple incomplete market and under a general utility function. By working with the associated Hamilton-Jacobi-Bellman partial differential equation (HJB PDE), we obtain a closed-form formula for a trading strategy which approximates the optimal trading strategy whe…

This paper studies the properties of discrete time stochastic optimal control problems associated with portfolio selection. We investigate if optimal continuous time strategies can be used effectively for a discrete time market after a straightforward discretization. We found that Merton's strategy approximates the per…

We derive a small-time expansion for out-of-the-money call options under an exponential Levy model, using the small-time expansion for the distribution function given in Figueroa-Lopez & Houdre (2009), combined with a change of numéraire via the Esscher transform. In particular, we quantify find that the effect of a no…

The geometry of the quaternionic anti-de Sitter fibration is studied in details. As a consequence, we obtain formulas for the horizontal Laplacian and subelliptic heat kernel of the fibration. The heat kernel formula is explicit enough to derive small time asymptotics. Related twistor spaces and corresponding heat kern…

For a sub-Riemannian manifold provided with a smooth volume, we relate the small time asymptotics of the heat kernel at a point $y$ of the cut locus from $x$ with roughly "how much" $y$ is conjugate to $x$. This is done under the hypothesis that all minimizers connecting $x$ to $y$ are strongly normal, i.e.\ all pieces…

Study on heat content for submanifolds in sub-Riemannian geometry.

We study the sub-Laplacian of the $15$-dimensional unit sphere which is obtained by lifting with respect to the Hopf fibration the Laplacian of the octonionic projective space. We obtain in particular explicit formulas for its heat kernel and deduce an expression for the Green function of a related sub-Laplacian. As a …

Study heat kernel on quaternionic contact manifolds, finding linear dependence of coefficients on curvature.

We provide a unifying treatment of pathwise moderate deviations for models commonly used in financial applications, and for related integrated functionals. Suitable scaling allows us to transfer these results into small-time, large-time and tail asymptotics for diffusions, as well as for option prices and realised vari…

We derive asymptotic expansions for option data to detect infinite variation volatility.

We present small-time implied volatility asymptotics for Realised Variance (RV) and VIX options for a number of (rough) stochastic volatility models via large deviations principle. We provide numerical results along with efficient and robust numerical recipes to compute the rate function; the backbone of our theoretica…

The main goal of this work is to study the sub-Laplacian of the unit sphere which is obtained by lifting with respect to the Hopf fibration the Laplacian of the quaternionic projective space. We obtain in particular explicit formulas for its heat kernel and deduce an expression for the Green function of the conformal s…

In this paper we provide the small-time heat kernel asymptotics at the cut locus in three relevant cases: generic low-dimensional Riemannian manifolds, generic 3D contact sub-Riemannian manifolds (close to the starting point) and generic 4D quasi-contact sub-Riemannian manifolds (close to a generic starting point). As …

We study the small-time behaviour of the rough Bergomi model, introduced by Bayer, Friz and Gatheral (2016), and prove a large deviations principle for a rescaled version of the normalised log stock price process, which then allows us to characterise the small-time behaviour of the implied volatility.

By adapting a technique of Molchanov, we obtain the heat kernel asymptotics at the sub-Riemannian cut locus, when the cut points are reached by an $r$-dimensional parametric family of optimal geodesics. We apply these results to the bi-Heisenberg group, that is, a nilpotent left-invariant sub-Rieman\-nian structure on …

The paper analyzes heat kernel asymptotics for real powers of Laplacians on manifolds.

This study examines abnormal geodesics in 2D-Zermelo navigation problems, revealing their role in separating time minimal and maximal curves.

This study presents new analytic approximations of the stochastic-alpha-beta-rho (SABR) model. Unlike existing studies that focus on the equivalent Black-Scholes (BS) volatility, we instead derive the equivalent constant-elasticity-of-variance (CEV) volatility. Our approach effectively reduces the approximation error i…

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 estimates of call prices an…

This article addresses the problem of approximating the price of options on discrete and continuous arithmetic average of the underlying, i.e. discretely and continuously monitored Asian options, in local volatility models. A path-integral-type expression for option prices is obtained using a Brownian bridge representa…

We compute a sharp small-time estimate for implied volatility under a general uncorrelated local-stochastic volatility model. For this we use the Bellaiche \cite{Bel81} heat kernel expansion combined with Laplace's method to integrate over the volatility variable on a compact set, and (after a gauge transformation) we …

In this paper, we study stochastic volatility models in regimes where the maturity is small, but large compared to the mean-reversion time of the stochastic volatility factor. The problem falls in the class of averaging/homogenization problems for nonlinear HJB-type equations where the "fast variable" lives in a noncom…

We consider the pricing of derivatives written on the discretely sampled realized variance of an underlying security. In the literature, the realized variance is usually approximated by its continuous-time limit, the quadratic variation of the underlying log-price. Here, we characterize the small-time limits of options…