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General Freidlin-Wentzell Large Deviations and positive diffusions

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  • Baldi, P.
  • Caramellino, L.

Abstract

We prove Freidlin-Wentzell Large Deviation estimates under rather minimal assumptions. This allows one to derive Wentzell-Freidlin Large Deviation estimates for diffusions on the positive half line with coefficients that are neither bounded nor Lipschitz continuous. This applies to models of interest in Finance, i.e. the CIR and the CEV models, which are positive diffusion processes whose diffusion coefficient is only Hölder continuous.

Suggested Citation

  • Baldi, P. & Caramellino, L., 2011. "General Freidlin-Wentzell Large Deviations and positive diffusions," Statistics & Probability Letters, Elsevier, vol. 81(8), pages 1218-1229, August.
  • Handle: RePEc:eee:stapro:v:81:y:2011:i:8:p:1218-1229
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    References listed on IDEAS

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    1. Robertson, Scott, 2010. "Sample path Large Deviations and optimal importance sampling for stochastic volatility models," Stochastic Processes and their Applications, Elsevier, vol. 120(1), pages 66-83, January.
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    Cited by:

    1. Dan Pirjol & Jing Wang & Lingjiong Zhu, 2017. "Short Maturity Forward Start Asian Options in Local Volatility Models," Papers 1710.03160, arXiv.org.
    2. Cai, Yujie & Wang, Shaochen, 2015. "Central limit theorem and moderate deviation principle for CKLS model with small random perturbation," Statistics & Probability Letters, Elsevier, vol. 98(C), pages 6-11.
    3. Louis-Pierre Arguin & Nien-Lin Liu & Tai-Ho Wang, 2017. "Most-likely-path in Asian option pricing under local volatility models," Papers 1706.02408, arXiv.org.
    4. Dan Pirjol & Lingjiong Zhu, 2017. "Short Maturity Asian Options for the CEV Model," Papers 1702.03382, arXiv.org.

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