A new analytical approximation tool, derived from the classical PDE theory, is introduced in order to build approximate transition densities of diffusions. The tool is useful for approximate pricing and hedging of financial derivatives and for maximum likelihood and method of moments estimates of diffusion parameters. The approximation is uniform with respect to time and space variables. Moreover, easily computable error bounds are available in any dimension.

Parametrix approximation of diffusion transition densities

PASCUCCI, ANDREA;FOSCHI, PAOLO;
2010

Abstract

A new analytical approximation tool, derived from the classical PDE theory, is introduced in order to build approximate transition densities of diffusions. The tool is useful for approximate pricing and hedging of financial derivatives and for maximum likelihood and method of moments estimates of diffusion parameters. The approximation is uniform with respect to time and space variables. Moreover, easily computable error bounds are available in any dimension.
A. Pascucci; P. Foschi; F. Corielli
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/92435
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