Analytical approximation of the transition density in a local volatility model
We 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.
|Date of creation:||04 May 2011|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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- Kristensen, Dennis & Mele, Antonio, 2011.
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- Luca Capriotti, 2006. "The Exponent Expansion: An Effective Approximation Of Transition Probabilities Of Diffusion Processes And Pricing Kernels Of Financial Derivatives," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(07), pages 1179-1199.
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- Sam Howison, 2005. "Matched asymptotic expansions in financial engineering," OFRC Working Papers Series 2005mf01, Oxford Financial Research Centre.
- Dmitry Davydov & Vadim Linetsky, 2001. "Pricing and Hedging Path-Dependent Options Under the CEV Process," Management Science, INFORMS, vol. 47(7), pages 949-965, July.
- Luca Capriotti, 2006. "The Exponent Expansion: An Effective Approximation of Transition Probabilities of Diffusion Processes and Pricing Kernels of Financial Derivatives," Papers physics/0602107, arXiv.org. Full references (including those not matched with items on IDEAS)
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