Analytical approximation of the transition density in a local volatility model
AbstractWe present a simplified approach to the analytical approximation of the transition density related to a general local volatility model. The methodology is sufficiently flexible to be extended to time-dependent coefficients, multi-dimensional stochastic volatility models, degenerate parabolic PDEs related to Asian options and also to include jumps.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 31107.
Date of creation: 04 May 2011
Date of revision:
option pricing; analytical approximation; local volatility;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-04 (All new papers)
- NEP-ETS-2011-06-04 (Econometric Time Series)
- NEP-ORE-2011-06-04 (Operations Research)
- NEP-SEA-2011-06-04 (South East Asia)
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