Closed-form formula for conditional moments of generalized nonlinear drift CEV process

Phiraphat Sutthimat, Khamron Mekchay and Sanae Rujivan

Applied Mathematics and Computation, 2022, vol. 428, issue C

Abstract: This paper studied a generalized case of the constant elasticity of variance diffusion (CEV) process whereas the drift term is substantially nonlinear in the short rate. Well-known instances deduced by this process are the extended Cox–Ingersoll–Ross (ECIR) process and the extended inverse Feller (EIF) process or 3/2-stochastic volatility model (SVM). We found particular sufficient conditions of existence and uniqueness of a positive pathwise strong solution for time-dependent parameter functions, and obtained closed-form formulas for conditional moments based on Feynman–Kac theorem. The accuracy and validity of the formulas were further investigated based on Monte Carlo simulations.

Keywords: Nonlinear drift CEV process; ECIR Process; 3/2-SVM; Conditional moment; Closed-form formula (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:428:y:2022:i:c:s0096300322002879

DOI: 10.1016/j.amc.2022.127213

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