TY - JOUR
T1 - Analytical representations for the basic affine jump diffusion
AU - Li, Lingfei
AU - Mendoza-Arriaga, Rafael
AU - Mitchell, Daniel
N1 - Publisher Copyright:
© 2015 Elsevier B.V. All rights reserved.
PY - 2016/1/1
Y1 - 2016/1/1
N2 - The Basic Affine Jump Diffusion (BAJD) process is widely used in financial modeling. In this paper, we develop an exact analytical representation for its transition density in terms of a series expansion that is uniformly-absolutely convergent on compacts. Computationally, our formula can be evaluated to high level of accuracy by easily adding new terms which are given explicitly. Furthermore, it can be easily generalized to give an analytical expression for the transition density of the subordinate BAJD process which is more realistic than the BAJD process, while existing approaches cannot.
AB - The Basic Affine Jump Diffusion (BAJD) process is widely used in financial modeling. In this paper, we develop an exact analytical representation for its transition density in terms of a series expansion that is uniformly-absolutely convergent on compacts. Computationally, our formula can be evaluated to high level of accuracy by easily adding new terms which are given explicitly. Furthermore, it can be easily generalized to give an analytical expression for the transition density of the subordinate BAJD process which is more realistic than the BAJD process, while existing approaches cannot.
KW - Basic affine jump diffusion
KW - Subordination
KW - Transition density
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U2 - 10.1016/j.orl.2015.12.003
DO - 10.1016/j.orl.2015.12.003
M3 - Article
AN - SCOPUS:84952327509
SN - 0167-6377
VL - 44
SP - 121
EP - 128
JO - Operations Research Letters
JF - Operations Research Letters
IS - 1
ER -