Density Approximations For Multivariate Affine Jump-Diffusion Processes

Damir Filipovic, Eberhard Berhard and Paul Schneider ()
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Damir Filipovic: Ecole Polythechnique Fédérale de Lausanne and Swiss Finance Institute
Eberhard Berhard: Vienna Institute of Finance

No 11-20, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We introduce closed-form transition density expansions for multivariate affine jump-diffusion processes. The expansions rely on a general approximation theory which we develop in weighted Hilbert spaces for random variables which possess all polynomial moments. We establish parametric conditions which guarantee existence and differentiability of transition densities of affine models and show how they naturally fit into the approximation framework. Empirical applications in credit risk, likelihood inference, and option pricing highlight the usefulness of our expansions. The approximations are extremely fast to evaluate, and they perform very accurately and numerically stable.

Keywords: Ane Processes; Asymptotic Expansion; Density Approximation; Orthogonal Polynomials (search for similar items in EconPapers)
JEL-codes: C13 C32 G12 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2011-04
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Density approximations for multivariate affine jump-diffusion processes (2013)
Working Paper: Density Approximations for Multivariate Affine Jump-Diffusion Processes (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1120

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