Asymptotic expansions for diffusions

15 June 2012
14:15
Dr Antoine Jacquier
Abstract
Given a diffusion in R^n, we prove a small-noise expansion for its density. Our proof relies on the Laplace method on Wiener space and stochastic Taylor expansions in the spirit of Benarous-Bismut. Our result applies (i) to small-time asymptotics and (ii) to the tails of the distribution and (iii) to small volatility of volatility. We shall study applications of this result to stochastic volatility models, recovering the Berestycki- Busca-Florent formula (using (i)), the Gulisashvili-Stein expansion (from (ii)) and Lewis' expansions (using (iii)). This is a joint work with J.D. Deuschel (TU Berlin), P. Friz (TU Berlin) and S. Violante (Imperial College London).