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|
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- Dennis Kristensen & Antonio Mele, 2009.
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CREATES Research Papers
2009-14, School of Economics and Management, University of Aarhus.
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