Smearing Distributions and their use in Financial Markets

Petr Jizba and Hagen Kleinert

Papers from arXiv.org

Abstract: It is shown that superpositions of path integrals with arbitrary Hamiltonians and different scaling parameters v ("variances") obey the Chapman-Kolmogorov relation for Markovian processes if and only if the corresponding smearing distributions for v have a specific functional form. Ensuing "smearing" distributions substantially simplify the coupled system of Fokker-Planck equations for smeared and un-smeared conditional probabilities. Simple application in financial models with stochastic volatility is presented.

Date: 2007-12
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:0712.0083

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