Abstract:We extend the classical theory of affine processes to a path-dependent setting by introducing path-dependent coefficients and provide analytic formulas for their Fourier--Laplace transform in terms of generalized Riccati-type equations. In the proposed framework, we define path-dependent affine processes through their exponential-affine Fourier--Laplace transform on the path space and establish a characterization theorem. Conversely, for path-dependent stochastic differential equations with affine path-dependent coefficients, we also provide explicit exponential-affine representations of the Fourier--Laplace functional in terms of those Riccati equations. Moreover, we derive a condition ensuring non-negativity of the path-dependent diffusion coefficient, guaranteeing well-posedness of the model. Finally, we apply these results to a path-dependent volatility model and a path-dependent extension of the Heston model, including a delayed Heston model as a special case.
From: Ludger Overbeck [view email]
[v1]
Mon, 22 Jun 2026 09:42:42 UTC (49 KB)
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