dorsal/arxiv
View SchemaThe Exponent Expansion: An Effective Approximation of Transition Probabilities of Diffusion Processes and Pricing Kernels of Financial Derivatives
| Authors | Luca Capriotti |
|---|---|
| Categories | |
| ArXiv ID | physics/0602107 |
| URL | https://arxiv.org/abs/physics/0602107 |
| Journal | International Journal of Theoretical and Applied Finance, Vol. 9, No. 7 (2006) 1179-1199 |
Abstract
A computational technique borrowed from the physical sciences is introduced to obtain accurate closed-form approximations for the transition probability of arbitrary diffusion processes. Within the path integral framework the same technique allows one to obtain remarkably good approximations of the pricing kernels of financial derivatives. Several examples are presented, and the application of these results to increase the efficiency of numerical approaches to derivative pricing is discussed.
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"abstract": "A computational technique borrowed from the physical sciences is introduced\nto obtain accurate closed-form approximations for the transition probability of\narbitrary diffusion processes. Within the path integral framework the same\ntechnique allows one to obtain remarkably good approximations of the pricing\nkernels of financial derivatives. Several examples are presented, and the\napplication of these results to increase the efficiency of numerical approaches\nto derivative pricing is discussed.",
"arxiv_id": "physics/0602107",
"authors": [
"Luca Capriotti"
],
"categories": [
"physics.soc-ph",
"cond-mat.stat-mech",
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"physics.comp-ph",
"q-fin.ST",
"stat.TH"
],
"journal_ref": "International Journal of Theoretical and Applied Finance, Vol. 9,\n No. 7 (2006) 1179-1199",
"title": "The Exponent Expansion: An Effective Approximation of Transition Probabilities of Diffusion Processes and Pricing Kernels of Financial Derivatives",
"url": "https://arxiv.org/abs/physics/0602107"
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