Extremal behavior of diffusion models in finance
\(\varepsilon\)-upcrossingsCox-Ingersoll-Ross modelextreme value theorygeneralized hyperbolic diffusiongeneralized inverse Gaussian diffusionPoisson approximationprice processrecurrent diffusionterm structure modelVasicek modelvolatility
Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Extreme value theory; extremal stochastic processes (60G70) Applications of stochastic analysis (to PDEs, etc.) (60H30) Diffusion processes (60J60) Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.) (60J70)
The authors study the extremal behavior of diffusion processes \(X_{t}\) defined by SDE \(dX_{t}=\mu(X_{t})dt+\sigma(X_{t})dw(t),\) with \(t>0\) and \(X_{0}=x,\) where \(w\) is a standard Brownian motion, \(\mu\) is the drift term and \(\sigma\) is the diffusion coefficient or volatility. Extremal behavior of a stochastic process \(X_{t}\) is for instance manifested in the asymptotic behavior of the running maxima \(M^{X}_{t}=\max_{0\leq s\leq t}X_{s},\;t>0,\) or running minima. The authors restrict themselves to the investigation of maxima, the mathematical treatment for minima being similar. The authors furthermore investigate the point process of \(\varepsilon\)-upcrossing of a high threshold \(u\) by \(X_{t}.\) For fixed \(\varepsilon>0\) the process has an \(\varepsilon\)-upcrossing at \(t\) if it has remained below \(u\) on the interval \((t-\varepsilon,t)\) and is equal to \(u\) at \(t.\) Under the weak conditions the point process of \(\varepsilon\)-upcrossing, properly scaled in time and space, converges in distribution to a homogeneous Poisson process. Two standard models like above-mentioned SDE in finance are the Black-Scholes model and the Vasicek model. The paper also aims at applications in finance: for the various models, namely Vasicek model, Cox-Ingersoll-Ross model and its generalized version, the generalized hyperbolic diffusion, the authors derive the distributional behavior of \(M^{X}_{t}\) as \(t\to+\infty\) which describes the extremal behavior of the whole process \(X_{t}.\) A new model, the generalized inverse Gaussian diffusion, is introduced. The results of this paper can be applied to study the risk measures of financial products as for instance the value of risk or related quantile risk measures.
- Highs and lows: Some properties of the extremes of a diffusion and applications in finance
- Estimates of Dynamic VaR and Mean Loss Associated to Diffusion Processes
- Extremes of supOU processes
- Generalized hyperbolic diffusion processes with applications in finance
- Extremal behavior of stochastic volatility models
- On modelling long term stock returns with ergodic diffusion processes: arbitrage and arbitrage-free specifications
- On point measures of -upcrossings for stationary diffusions.
- Testing for the presence of jump components in jump diffusion models
- Heavy-traffic extreme value limits for Erlang delay models
- A continuous-state polynomial branching process
- Asymptotic properties of estimators in a stable Cox-Ingersoll-Ross model
- Stochastic spikes and Poisson approximation of one-dimensional stochastic differential equations with applications to continuously measured quantum systems
- Estimation of stochastic volatility models by nonparametric filtering
- ESTIMATION OF VALUE AT RISK AND RUIN PROBABILITY FOR DIFFUSION PROCESSES WITH JUMPS
- Estimates of Dynamic VaR and Mean Loss Associated to Diffusion Processes
- NONPARAMETRIC STOCHASTIC VOLATILITY
- Highs and lows: Some properties of the extremes of a diffusion and applications in finance
- Convergence rates of sums of -mixing triangular arrays: with an application to nonparametric drift function estimation of continuous-time processes
- On strong solutions for positive definite jump diffusions
- Maxima of stochastic processes driven by fractional Brownian motion
- Bandwidth selection and asymptotic properties of local nonparametric estimators in possibly nonstationary continuous-time models
- Uniform and L_p convergences for nonparametric continuous time regressions with semiparametric applications
- Gatheral double stochastic volatility model with Skorokhod reflection
- Nonparametric estimation of forward-backward stochastic differential equations with random terminal time
This page was built for publication: Extremal behavior of diffusion models in finance
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q1294762)
