Computational method for probability distribution on recursive relationships in financial applications

Jong Jun Park and Kyungsub Lee

Papers from arXiv.org

Abstract: In quantitative finance, it is often necessary to analyze the distribution of the sum of specific functions of observed values at discrete points of an underlying process. Examples include the probability density function, the hedging error, the Asian option, and statistical hypothesis testing. We propose a method to calculate such a distribution, utilizing a recursive method, and examine it using various examples. The results of the numerical experiment show that our proposed method has high accuracy.

Date: 2019-08
New Economics Papers: this item is included in nep-cmp and nep-sea
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