Signature-Based Models in Finance

We consider two classes of asset price models where either the price or the volatility dynamics are described by a linear function of the (time extended) signature of a primary process, in general a multidimensional continuous semimartingale. These model classes are universal in the sense that classical models can be approximated arbitrarily well or are simply nested in our setup. Under the additional assumption that the primary process is polynomial, we obtain tractable option pricing formulas for so-called sig-payoffs in the first class and closed form expressions for the VIX squared and the log-price in the second one. In both cases the signature samples can be easily precomputed, hence the calibration task can be split into an offline sampling and a standard optimization. We present several applications, in particular the successfully solved joint SPX/VIX calibration problem.