We propose a new modeling framework for the valuation of European options, in which dynamic short and long run volatility components drive the smile dynamics. The model state dynamics is driven by a matrix jump diffusion, provides efficient pricing formulas for plain vanilla options by means of...

We consider two sequences of Markov chains inducing equivalent measures on the discrete path space. We establish conditions under which these two measures converge weakly to measures induced on the Wiener space by weak solutions of two SDEs, which are unique in the sense of probability law. We...