Martingale expansion for stochastic volatility
Abstract
The martingale expansion provides a refined approximation to the marginal distributions of martingales beyond the normal approximation implied by the martingale central limit theorem. We develop a martingale expansion framework specifically suited to continuous stochastic volatility models. Our approach accommodates both small volatility-of-volatility and fast mean-reversion models, yielding first-order perturbation expansions under essentially minimal conditions.
Fields of Study & Subjects
Stochastic processes and financial applications
Financial Risk and Volatility Modeling
Probability and Statistical Research
Publication details
- Journal / source
- arXiv (Cornell University)
- Publication date
- 14 January 2026
- Document type
- Preprint