Pré-Publication, Document De Travail Année : 2025

Martingale property and moment explosions in signature volatility models

Résumé

We study the martingale property and moment explosions of a signature volatility model, where the volatility process of the log-price is given by a linear form of the signature of a time-extended Brownian motion. Excluding trivial cases, we demonstrate that the price process is a true martingale if and only if the order of the linear form is odd and a correlation parameter is negative. The proof involves a fine analysis of the explosion time of a signature stochastic differential equation. This result is of key practical relevance, as it highlights that, when used for approximation purposes, the linear combination of signature elements must be taken of odd order to preserve the martingale property. Once martingality is established, we also characterize the existence of higher moments of the price process in terms of a condition on a correlation parameter.

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hal-04999502 , version 1 (20-03-2025)

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  • HAL Id : hal-04999502 , version 1

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Eduardo Abi Jaber, Paul Gassiat, Dimitri Sotnikov. Martingale property and moment explosions in signature volatility models. 2025. ⟨hal-04999502⟩
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