Dareiotis, K and Ekström, E (2018) Density symmetries for a class of 2-D diffusions with applications to finance. Stochastic Processes and their Applications, 129 (2). pp. 452-472. ISSN 0304-4149
Abstract
We study densities of two-dimensional diffusion processes with one non-negative component. For such diffusions, the density may explode at the boundary, thus making a precise specification of the boundary condition in the corresponding forward Kolmogorov equation problematic. We overcome this by extending a classical symmetry result for densities of one-dimensional diffusions to our case, thereby reducing the study of forward equations with exploding boundary data to the study of a related backward equation with non-exploding boundary data. We also discuss applications of this symmetry for option pricing in stochastic volatility models and in stochastic short rate models.
Metadata
Item Type: | Article |
---|---|
Authors/Creators: |
|
Copyright, Publisher and Additional Information: | © 2018 Elsevier B.V. All rights reserved. This is an author produced version of an article published in Stochastic Processes and their Applications. Uploaded in accordance with the publisher's self-archiving policy. |
Dates: |
|
Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Engineering & Physical Sciences (Leeds) > School of Mathematics (Leeds) > Statistics (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 06 Nov 2019 13:19 |
Last Modified: | 25 Jun 2023 22:03 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.spa.2018.03.007 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:153133 |
Download
Filename: Density symmetries for a class of 2-D diffusions with applications to finance.pdf
Licence: CC-BY-NC-ND 4.0