 Asymptotic Analysis of the Mixed-Exponential Jump Diffusion Model and Its Financial ApplicationsChao Shi Journal of Economic Dynamics and Control, 2022, vol. 143, issue C Abstract: Transform inversion is a popular approach to pricing many types of path-dependent options under various dynamic models. However, it is usually difficult to guarantee the accuracy due to the lack of error control, which often depends heavily on the asymptotic property of the transform function. This article characterizes the asymptotic behaviors of all the complex roots of the exponent equation under the mixed-exponential jump diffusion model (MEM), by which one can output the error bounds and achieve any pre-specified error tolerance in the transform inversion algorithm when pricing various path-dependent options under the MEM. Numerical examples indicate that the resulting transform inversion algorithm with our computable error bounds are reliably accurate and efficient for pricing lookback options and barrier options, and evaluating a joint distribution under the MEM. Keywords: Mixed-exponential jump diffusion model; Exponent equation; Transform inversion; Lookback option; Barrier option (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:143:y:2022:i:c:s0165188922002226 DOI: 10.1016/j.jedc.2022.104518 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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