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arxiv: 1710.11202 · v3 · pith:A5WK6W7Znew · submitted 2017-10-30 · 🧮 math.PR

Scaling Limits of Processes with Fast Nonlinear Mean Reversion

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keywords fastlimitsnonlinearprocessesscalinganalysisaveragedblock
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We derive scaling limits for integral functionals of It\^o processes with fast nonlinear mean-reversion speed. We show that in these limits, the fast mean-reverting process is "averaged out" by integrating against its invariant measure. These convergence results hold uniformly in probability and, under mild integrability conditions, also in $\mathcal{S}^p$. They are a crucial building block for the analysis of portfolio choice models with small superlinear transaction costs, carried out in the companion paper of the present study.

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