A New Improvement Scheme for Approximation Methods of Probability Density Functions

Akihiko Takahashi and Yukihiro Tsuzuki
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Akihiko Takahashi: The University of Tokyo
Yukihiro Tsuzuki: The University of Tokyo

No CARF-F-305, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper develops a new scheme for improving an approximation method of a probability density function, which is inspired by the idea in best approximation in an inner product space. Moreover, we applies "Dykstra's cyclic projections algorithm" for its implementation. Numerical examples for application to an asymptotic expansion method in option pricing demonstrate the effectiveness of our scheme under Black-Scholes and SABR models.

Pages: 23 pages
Date: 2013-01
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Citations: View citations in EconPapers (1)

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