Long-term and blow-up behaviors of exponential moments in multi-dimensional affine diffusions

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This paper considers multi-dimensional affine processes with continuous sample paths. By analyzing the Riccati system, which is associated with affine processes via the transform formula, we fully characterize the regions of exponents in which exponential moments of a given process do not explode at any time or explode at a given time. In these two cases, we also compute the long-term growth rate and the explosion rate for exponential moments. These results provide a handle to study implied volatility asymptotics in models where log-returns of stock prices are described by affine processes whose exponential moments do not have an explicit formula. (C) 2012 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2012-08
Language
English
Article Type
Article
Citation

STOCHASTIC PROCESSES AND THEIR APPLICATIONS, v.122, no.8, pp.2961 - 2993

ISSN
0304-4149
DOI
10.1016/j.spa.2012.05.007
URI
http://hdl.handle.net/10203/104510
Appears in Collection
IE-Journal Papers(저널논문)
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