Sharp estimates for Geman-Yor processes and applications to arithmetic average Asian options (Q2274018)

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Sharp estimates for Geman-Yor processes and applications to arithmetic average Asian options
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    Sharp estimates for Geman-Yor processes and applications to arithmetic average Asian options (English)
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    19 September 2019
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    The authors obtain the results for partial differential equations and apply them to Geman-Yor stochastic processes, that arise in models for option pricing theory in finance, especially in the pricing of arithmetic average Asian options. More about the results: the existence of the fundamental solution of the degenerate second order partial differential equation, related to Geman-Yor stochastic processes, is established, and pointwise lower and upper bounds for such fundamental solution are provided. Lower bounds are obtained by using repeatedly an invariant Harnack inequality and by solving an associated optimal control problem with quadratic cost. Upper bounds are obtained by the fact that the cost satisfies a specific Hamilton-Jacobi-Bellman equation. Concerning the stochastic components, the paper contains elements of stochastic theory, the basics of Malliavin calculus, Hörmander condition and the Pontryagin maximum principle.
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    hypoelliptic operators
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    Geman-Yor stochastic process
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    Harnack inequality
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    optimal control
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    option pricing theory
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    Malliavin calculus, Hörmander condition
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