Pricing Options on Forwards in Function-Valued Affine Stochastic Volatility Models
Fuente:
arXiv
Saved in:
| Main Authors: | , , |
|---|---|
| Format: | Preprint |
| Published: |
2025
|
| Subjects: | |
| Online Access: | |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1866908958648696832 |
|---|---|
| author | He, Jian Karbach, Sven Khedher, Asma |
| author_facet | He, Jian Karbach, Sven Khedher, Asma |
| contents | We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the Heath-Jarrow-Morton-Musiela framework as solution to a stochastic partial differential equation modulated by a stochastic volatility process. We analyze two classes of affine stochastic volatility models: (i) a Gaussian model governed by a finite-rank Wishart process, and (ii) a pure-jump affine model extending the Barndorff--Nielsen--Shephard framework with state-dependent jumps in the covariance component. For both models, we derive conditions for the existence of exponential moments and develop semi-closed Fourier-based pricing formulas for vanilla call and put options written on forward price curves. Our approach allows for tractable pricing in models with infinitely many risk factors, thereby capturing maturity-specific and term structure risk essential in forward markets. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2508_14813 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Pricing Options on Forwards in Function-Valued Affine Stochastic Volatility Models He, Jian Karbach, Sven Khedher, Asma Mathematical Finance Probability Computational Finance We study the pricing of European-style options written on forward contracts within function-valued infinite-dimensional affine stochastic volatility models. The dynamics of the underlying forward price curves are modeled within the Heath-Jarrow-Morton-Musiela framework as solution to a stochastic partial differential equation modulated by a stochastic volatility process. We analyze two classes of affine stochastic volatility models: (i) a Gaussian model governed by a finite-rank Wishart process, and (ii) a pure-jump affine model extending the Barndorff--Nielsen--Shephard framework with state-dependent jumps in the covariance component. For both models, we derive conditions for the existence of exponential moments and develop semi-closed Fourier-based pricing formulas for vanilla call and put options written on forward price curves. Our approach allows for tractable pricing in models with infinitely many risk factors, thereby capturing maturity-specific and term structure risk essential in forward markets. |
| title | Pricing Options on Forwards in Function-Valued Affine Stochastic Volatility Models |
| topic | Mathematical Finance Probability Computational Finance |
| url | https://arxiv.org/abs/2508.14813 |