Signature-Based Models: Theory and Calibration

Abstract

Abstract. We consider asset price models whose dynamics are described by linear functions of the (time extended) signature of a primary underlying process, which can range from a (market-inferred) Brownian motion to a general multidimensional continuous semimartingale. The framework is universal in the sense that classical models can be approximated arbitrarily well and that the model’s parameters can be learned from all sources of available data by simple methods. We provide conditions guaranteeing absence of arbitrage as well as tractable option pricing formulas for so-called sig-payoffs, exploiting the polynomial nature of generic primary processes. One of our main focuses lies on calibration, where we consider both time-series and implied volatility surface data, generated from classical stochastic volatility models and also from S&P 500 index market data. For both tasks the linearity of the model turns out to be the crucial tractability feature which allows one to get fast and accurate calibrations results, since the signature samples can be easily precomputed.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 30 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.