Loading...
research article
Polynomial diffusions and applications in finance
This paper provides the mathematical foundation for polynomial diffusions. They play an important role in a growing range of applications in finance, including financial market models for interest rates, credit risk, stochastic volatility, commodities and electricity. Uniqueness of polynomial diffusions is established via moment determinacy in combination with pathwise uniqueness. Existence boils down to a stochastic invariance problem that we solve for semialgebraic state spaces. Examples include the unit ball, the product of the unit cube and nonnegative orthant, and the unit simplex.
Type
research article
Web of Science ID
WOS:000388316900005
Authors
Publication date
2016
Publisher
Published in
Volume
20
Issue
4
Start page
931
End page
972
Peer reviewed
REVIEWED
EPFL units
Available on Infoscience
January 24, 2017
Use this identifier to reference this record