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Linking Path-Dependent and Stochastic Volatility Models

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  • Samuel N. Cohen
  • Cephas Svosve

Abstract

We explore a link between stochastic volatility (SV) and path-dependent volatility (PDV) models. Using assumed density filtering, we map a given SV model into a corresponding PDV representation. The resulting specification is lightweight, improves in-sample fit, and delivers robust out-of-sample forecasts. We also introduce a calibration procedure for both SV and PDV models that produces standard errors for parameter estimates and supports joint calibration of SPX/VIX smile.

Suggested Citation

  • Samuel N. Cohen & Cephas Svosve, 2025. "Linking Path-Dependent and Stochastic Volatility Models," Papers 2510.02024, arXiv.org.
    • Handle: RePEc:arx:papers:2510.02024
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    File URL: http://arxiv.org/pdf/2510.02024
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