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 (2010). Parametrix approximation of diffusion transition densities. SIAM JOURNAL ON FINANCIAL MATHEMATICS, 1, 833-867 [10.1137/080742336].
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
