Analytical approximation of the transition density in a local volatility model

Stefano Pagliarani; Andrea Pascucci

Open Mathematics (2012)

  • Volume: 10, Issue: 1, page 250-270
  • ISSN: 2391-5455

Abstract

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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.

How to cite

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Stefano Pagliarani, and Andrea Pascucci. "Analytical approximation of the transition density in a local volatility model." Open Mathematics 10.1 (2012): 250-270. <http://eudml.org/doc/269373>.

@article{StefanoPagliarani2012,
abstract = {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.},
author = {Stefano Pagliarani, Andrea Pascucci},
journal = {Open Mathematics},
keywords = {Local volatility; Analytical approximation; Heat kernel expansion; Black-Scholes formula; Transition density; local volatility; analytical approximation; heat kernel expansion; transition density},
language = {eng},
number = {1},
pages = {250-270},
title = {Analytical approximation of the transition density in a local volatility model},
url = {http://eudml.org/doc/269373},
volume = {10},
year = {2012},
}

TY - JOUR
AU - Stefano Pagliarani
AU - Andrea Pascucci
TI - Analytical approximation of the transition density in a local volatility model
JO - Open Mathematics
PY - 2012
VL - 10
IS - 1
SP - 250
EP - 270
AB - 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.
LA - eng
KW - Local volatility; Analytical approximation; Heat kernel expansion; Black-Scholes formula; Transition density; local volatility; analytical approximation; heat kernel expansion; transition density
UR - http://eudml.org/doc/269373
ER -

References

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