A variational formula for positive functionals of a Poisson random measure and brownian motion is proved. The formula is based on the relative entropy representation for exponential integrals, and can be used to prove large deviation type estimates. A general large deviation result is proved, and illustrated with an example.
This paper examines the pricing of two-asset European options under the Merton model represented by a nonstationary integro-differential equation with two state variables. For its numerical solution, the wavelet-Galerkin method combined with the Crank-Nicolson scheme is used. A drawback of most classical methods is the full structure of discretization matrices. In comparison, the wavelet method enables the approximation of discretization matrices with sparse matrices. Sparsity is essential for the...
We introduce and study a class of random walks defined on the integer lattice -a discrete space and time counterpart of the symmetric α-stable process in . When 0 < α <2 any coordinate axis in , d ≥ 3, is a non-massive set whereas any cone is massive. We provide a necessary and sufficient condition for a thorn to be a massive set.