Martingality in EFM Signature Volatility Models

We establish a martingality criterion for the Exponentially Fading Memory (EFM) signature volatility model, extending the recent result of Abi Jaber, Gassiat, and Sotnikov (2026). In the proposed framework, the volatility process is given by a linear functional of the EFM signature of a time-augmented Brownian motion, which yields a globally well-behaved, fully non-Markovian volatility model admitting a stationary distribution. The stationary EFM signature volatility model is also covered by allowing for a random initial value of the signature. Moreover, the volatility process can be adjusted to the initial forward variance curve. For this model, excluding trivial cases, we prove that the price process is a true martingale if and only if the truncation order is odd and a sign condition involving the correlation parameter holds.

Authors

Publication Details

Journal
arXiv (Cornell University)
Published
2026-10-26
DOI
https://doi.org/10.48550/arxiv.2610.35022
Primary Topic
Stochastic processes and financial applications
Type
preprint
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preprint

Martingality in EFM Signature Volatility Models

Dimitri Sotnikov, Adeline Viot
arXiv (Cornell University)
Stochastic processes and financial applications
preprint

Martingality in EFM Signature Volatility Models

Dimitri Sotnikov, Adeline Viot
preprint en

Abstract

We establish a martingality criterion for the Exponentially Fading Memory (EFM) signature volatility model, extending the recent result of Abi Jaber, Gassiat, and Sotnikov (2026). In the proposed framework, the volatility process is given by a linear functional of the EFM signature of a time-augmented Brownian motion, which yields a globally well-behaved, fully non-Markovian volatility model admitting a stationary distribution. The stationary EFM signature volatility model is also covered by allowing for a random initial value of the signature. Moreover, the volatility process can be adjusted to the initial forward variance curve. For this model, excluding trivial cases, we prove that the price process is a true martingale if and only if the truncation order is odd and a sign condition involving the correlation parameter holds.

arXiv (Cornell University)
Stochastic processes and financial applications
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