Transform analysis and asset pricing for diffusion processes: a recursive approach
| Authors |
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|---|---|
| Publication date | 2012 |
| Journal | Journal of Computational Finance |
| Volume | Issue number | 16 | 1 |
| Pages (from-to) | 47-81 |
| Organisations |
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| Abstract |
Diffusion processes play a major role in continuous-time modeling in economics, particularly in continuous-time finance. In most cases, however, the transition density function of a diffusion process is not available in closed form. Using Feynman-Kac integration, we construct a recursive scheme for the Laplace transform (in time) of the transition density function. This provides a semianalytic and highly accurate solution to a wide range of asset pricing problems. Generalizations of our technique to functionals of non-Gaussian processes are also briefly discussed. |
| Document type | Article |
| Language | English |
| Published at | http://www.risk.net/digital_assets/5708/jcf_laeven_web.pdf |
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