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Czasopismo

2012 | 10 | 1 | 250-270

Tytuł artykułu

Analytical approximation of the transition density in a local volatility model

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EN

Abstrakty

EN
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.

Twórcy

  • Università di Padova
  • Università di Bologna

Bibliografia

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  • [2] Barjaktarevic J.P., Rebonato R., Approximate solutions for the SABR model: improving on the Hagan expansion, Talk at ICBI Global Derivatives Trading and Risk Management Conference, 2010
  • [3] Benhamou E., Gobet E., Miri M., Expansion formulas for European options in a local volatility model, Int. J. Theor. Appl. Finance, 2010, 13(4), 603–634 http://dx.doi.org/10.1142/S0219024910005887
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  • [5] Capriotti L., The exponent expansion: an effective approximation of transition probabilities of diffusion processes and pricing kernels of financial derivatives, Int. J. Theor. Appl. Finance, 2006, 9(7), 1179–1199 http://dx.doi.org/10.1142/S0219024906003925
  • [6] Cheng W., Costanzino N., Liechty J., Mazzucato A., Nistor V., Closed-form asymptotics and numerical approximations of 1D parabolic equations with applications to option pricing, SIAM J. Financial Math., 2011, 2, 901–934 http://dx.doi.org/10.1137/100796832
  • [7] Constantinescu R., Costanzino N., Mazzucato A.L., Nistor V., Approximate solutions to second order parabolic equations I: analytic estimates, J. Math. Phys., 2010, 51(10), #103502
  • [8] Corielli F., Foschi P., Pascucci A., Parametrix approximation of diffusion transition densities, SIAM J. Financial Math., 2010, 1, 833–867 http://dx.doi.org/10.1137/080742336
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  • [14] Foschi P., Pagliarani S., Pascucci A., Black-Scholes formulae for Asian options in local volatility models, preprint available at http://ssrn.com/paper=1898992
  • [15] Fouque J.-P., Papanicolaou G., Sircar R., Solna K., Singular perturbations in option pricing, SIAM J. Appl. Math., 2003, 63(5), 1648–1665 http://dx.doi.org/10.1137/S0036139902401550
  • [16] Gatheral J., Hsu E.P., Laurence P., Ouyang C., Wang T.-H., Asymptotics of implied volatility in local volatility models, Math. Finance (in press), DOI: 10.1111/j.1467-9965.2010.00472.x
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  • [28] Lindsay A., Brecher D., Results on the CEV process, past and present, preprint available at http://ssrn.com/paper=1567864
  • [29] Pagliarani S., Pascucci A., Riga C., Expansion formulae for local Lévy models, preprint available at http://ssrn.com/paper=1937149
  • [30] Pascucci A., PDE and Martingale Methods in Option Pricing, Bocconi Springer Ser., 2, Springer, Milan, 2011
  • [31] Paulot L., Asymptotic implied volatility at the second order with application to the SABR model, preprint available at http://ssrn.com/paper=1413649
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Bibliografia

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