IDEAS home Printed from
   My bibliography  Save this paper

Marginal density expansions for diffusions and stochastic volatility, part I: Theoretical Foundations


  • J. D. Deuschel
  • P. K. Friz
  • A. Jacquier
  • S. Violante


Density expansions for hypoelliptic diffusions $(X^1,...,X^d)$ are revisited. In particular, we are interested in density expansions of the projection $(X_T^1,...,X_T^l)$, at time $T>0$, with $l \leq d$. Global conditions are found which replace the well-known "not-in-cutlocus" condition known from heat-kernel asymptotics. Our small noise expansion allows for a "second order" exponential factor. As application, new light is shed on the Takanobu--Watanabe expansion of Brownian motion and Levy's stochastic area. Further applications include tail and implied volatility asymptotics in some stochastic volatility models, discussed in a compagnion paper.

Suggested Citation

  • J. D. Deuschel & P. K. Friz & A. Jacquier & S. Violante, 2011. "Marginal density expansions for diffusions and stochastic volatility, part I: Theoretical Foundations," Papers 1111.2462,, revised May 2013.
  • Handle: RePEc:arx:papers:1111.2462

    Download full text from publisher

    File URL:
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    1. Jim Gatheral & Antoine Jacquier, 2011. "Convergence of Heston to SVI," Quantitative Finance, Taylor & Francis Journals, vol. 11(8), pages 1129-1132.
    2. S. Benaim & P. Friz, 2009. "Regular Variation And Smile Asymptotics," Mathematical Finance, Wiley Blackwell, vol. 19(1), pages 1-12.
    3. Roger W. Lee, 2004. "The Moment Formula For Implied Volatility At Extreme Strikes," Mathematical Finance, Wiley Blackwell, vol. 14(3), pages 469-480.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Archil Gulisashvili, 2017. "Large deviation principle for Volterra type fractional stochastic volatility models," Papers 1710.10711,, revised Jan 2018.
    2. Antoine Jacquier & Mikko S. Pakkanen & Henry Stone, 2017. "Pathwise large deviations for the Rough Bergomi model," Papers 1706.05291,, revised Jan 2018.
    3. Archil Gulisashvili, 2014. "Distance to the line in the Heston model," Papers 1409.6027,
    4. Jacquier, Antoine & Roome, Patrick, 2016. "Large-maturity regimes of the Heston forward smile," Stochastic Processes and their Applications, Elsevier, vol. 126(4), pages 1087-1123.
    5. Akihiko Takahashi, 2015. "Asymptotic Expansion Approach in Finance," CARF F-Series CARF-F-356, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Aug 2015.
    6. John Armstrong & Martin Forde & Matthew Lorig & Hongzhong Zhang, 2013. "Small-time asymptotics for a general local-stochastic volatility model with a jump-to-default: curvature and the heat kernel expansion," Papers 1312.2281,, revised Sep 2016.
    7. Antoine Jacquier & Patrick Roome, 2015. "Black-Scholes in a CEV random environment," Papers 1503.08082,, revised Nov 2017.
    8. Archil Gulisashvili & Frederi Viens & Xin Zhang, 2015. "Extreme-Strike Asymptotics for General Gaussian Stochastic Volatility Models," Papers 1502.05442,, revised Feb 2017.
    9. repec:spr:finsto:v:21:y:2017:i:3:d:10.1007_s00780-017-0330-x is not listed on IDEAS
    10. Christian Bayer & Peter K. Friz & Archil Gulisashvili & Blanka Horvath & Benjamin Stemper, 2017. "Short-time near-the-money skew in rough fractional volatility models," Papers 1703.05132,, revised Mar 2018.
    11. Peter Friz & Stefan Gerhold & Arpad Pinter, 2016. "Option Pricing in the Moderate Deviations Regime," Papers 1604.01281,
    12. Christian Bayer & Peter K. Friz & Paul Gassiat & Joerg Martin & Benjamin Stemper, 2017. "A regularity structure for rough volatility," Papers 1710.07481,
    13. Archil Gulisashvili & Frederi Viens & Xin Zhang, 2015. "Small-time asymptotics for Gaussian self-similar stochastic volatility models," Papers 1505.05256,, revised Mar 2016.
    14. Stefano De Marco & Peter Friz, 2013. "Varadhan's formula, conditioned diffusions, and local volatilities," Papers 1311.1545,, revised Jun 2016.
    15. Antoine Jacquier & Patrick Roome, 2013. "The Small-Maturity Heston Forward Smile," Papers 1303.4268,, revised Aug 2013.
    16. Matthew Lorig & Stefano Pagliarani & Andrea Pascucci, 2014. "Asymptotics for $d$-dimensional L\'evy-type processes," Papers 1404.3153,, revised Nov 2014.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1111.2462. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.