Markov Cubature Rules for Polynomial Processes

Damir Filipović, Martin Larsson and Sergio Pulido
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Damir Filipović: Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute
Martin Larsson: ETH Zurich
Sergio Pulido: Université d' Évry-Val-d'Essonne

No 16-79, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study discretizations of polynomial processes using finite state Markov processes satisfying suitable moment-matching conditions. The states of these Markov processes together with their transition probabilities can be interpreted as Markov cubature rules. The polynomial property allows us to study the existence of such rules using algebraic techniques. These rules aim to improve the tractability and ease the implementation of models where the underlying factors are polynomial processes.

Keywords: Polynomial Process; Cubature Rule; Asymptotic Moments; Transition Rate Matrix; Transition Probabilities; Negative Probabilities (search for similar items in EconPapers)
JEL-codes: C63 C65 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-12
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1679

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