Gaussian Stochastic Volatility Models: Scaling Regimes, Large Deviations, and Moment Explosions

40 Pages Posted: 29 Apr 2019 Last revised: 16 Jun 2019

Date Written: April 7, 2019

Abstract

In this paper, we establish sample path large and moderate deviation principles for log-price processes in Gaussian stochastic volatility models, and study the asymptotic behavior of exit probabilities, call pricing functions, and the implied volatility. In addition, we prove that if the volatility function in an uncorrelated Gaussian model grows faster than linearly, then, for the asset price process, all the moments of order greater than one are infinite. Similar moment explosion results are obtained for correlated models.

Keywords: Gaussian stochastic volatility models, Volterra type models, sample path large and moderate deviations, central limit regime, moment explosions, implied volatility asymptotics

Suggested Citation

Gulisashvili, Archil, Gaussian Stochastic Volatility Models: Scaling Regimes, Large Deviations, and Moment Explosions (April 7, 2019). Available at SSRN: https://ssrn.com/abstract=3367829 or http://dx.doi.org/10.2139/ssrn.3367829

Archil Gulisashvili (Contact Author)

Ohio University ( email )

Athens, OH 45701-2979
United States
740-593-1281 (Phone)
740-593-9805 (Fax)

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