Analytical approximation of the transition density in a local volatility model

Stefano Pagliarani and Andrea Pascucci

MPRA Paper from University Library of Munich, Germany

Abstract: We present a simplified approach to the analytical approximation of the transition density related to a general local volatility model. The methodology is sufficiently flexible to be extended to time-dependent coefficients, multi-dimensional stochastic volatility models, degenerate parabolic PDEs related to Asian options and also to include jumps.

Keywords: option pricing; analytical approximation; local volatility (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2011-05-04
New Economics Papers: this item is included in nep-ets, nep-ore and nep-sea
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:31107

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