Name
Abstract | ||
|---|---|---|
AbstractWe propose a novel method for the analytical approximation in local volatility models with Lévyjumps. The main result is an expansion of the characteristic function in a local Lévy model, whichis worked out in the Fourier space by considering the adjoint formulation of the pricing problem.Combined with standard Fourier methods, our result provides efficient and accurate pricingformulae. In the case of Gaussian jumps, we also derive an explicit approximation of thetransition density of the underlying process by a heat kernel expansion: the approximation isobtained in two ways, using partial integro-differential equation techniques and working in the Fourier space. Numerical testsconfirm the effectiveness of the method. |
Year | DOI | Venue |
|---|---|---|
2013 | 10.1137/110858732 | Periodicals |
Keywords | Field | DocType |
Levy process,local volatility,analytical approximation,partial integro-differential equation,Fourier methods | Frequency domain,Numerical tests,Mathematical optimization,Financial economics,Characteristic function (probability theory),Mathematical analysis,Heat kernel,Fourier transform,Local volatility,Gaussian,Lévy process,Mathematics | Journal |
Volume | Issue | ISSN |
4 | 1 | 1945-497X |
Citations | PageRank | References |
2 | 0.86 | 5 |
Authors | ||
3 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Stefano Pagliarani | 1 | 13 | 4.09 |
| Andrea Pascucci | 2 | 34 | 9.05 |
| Candia Riga | 3 | 2 | 0.86 |