Order Estimates for the Exact Lugannani-Rice Expansion
AbstractThe Lugannani-Rice formula is a saddlepoint approximation method for estimating the tail probability distribution function, which was originally studied for the sum of independent identically distributed random variables. Because of its tractability, the formula is now widely used in practical financial engineering as an approximation formula for the distribution of a (single) random variable. In this paper, the Lugannani-Rice approximation formula is derived for a general, parametrized sequence of random variables and the order estimates of the approximation are given.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1310.3347.
Date of creation: Oct 2013
Date of revision: Jun 2014
Contact details of provider:
Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
- del BaÃ±o Rollin, Sebastian & Ferreiro-Castilla, Albert & Utzet, Frederic, 2010. "On the density of log-spot in the Heston volatility model," Stochastic Processes and their Applications, Elsevier, Elsevier, vol. 120(10), pages 2037-2063, September.
- C. Gourieroux, 2006. "Continuous Time Wishart Process for Stochastic Risk," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 25(2-3), pages 177-217.
- Xiong, Jian & Wong, Augustine & Salopek, Donna, 2005. "Saddlepoint approximations to option price in a general equilibrium model," Statistics & Probability Letters, Elsevier, Elsevier, vol. 71(4), pages 361-369, March.
- Ai[dieresis]t-Sahalia, Yacine & Yu, Jialin, 2006. "Saddlepoint approximations for continuous-time Markov processes," Journal of Econometrics, Elsevier, Elsevier, vol. 134(2), pages 507-551, October.
- JosE Da Fonseca & Martino Grasselli & Claudio Tebaldi, 2008. "A multifactor volatility Heston model," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(6), pages 591-604.
- Joan Jasiak & R. Sufana & C. Gourieroux, 2005.
"The Wishart Autoregressive Process of Multivariate Stochastic Volatility,"
Working Papers, York University, Department of Economics
2005_2, York University, Department of Economics.
- Gourieroux, C. & Jasiak, J. & Sufana, R., 2009. "The Wishart Autoregressive process of multivariate stochastic volatility," Journal of Econometrics, Elsevier, Elsevier, vol. 150(2), pages 167-181, June.
- JosÃ© Fonseca & Martino Grasselli & Claudio Tebaldi, 2007. "Option pricing when correlations are stochastic: an analytical framework," Review of Derivatives Research, Springer, Springer, vol. 10(2), pages 151-180, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.