Order estimates for the exact Lugannani-Rice expansion

DOI10.1007/S13160-015-0199-ZMaRDI QIDQ263055zbMATH OpenOpenAlexFDO

Authors Takashi Kato, Jun Sekine, Kenichi Yoshikawa

Publication date 4 April 2016

Published in Japan Journal of Industrial and Applied Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1310.3347

zbMATH Keywords

asymptotic expansionsaddlepoint approximationLugannani-Rice formulaorder estimatesstochastic volatility models

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Approximations to statistical distributions (nonasymptotic) (62E17) Algorithms for approximation of functions (65D15)

Abstract: The Lugannani-Rice formula is a saddlepoint approximation method for estimating the tail probability distribution function, which was originally studied for the sum of independent identically distributed random variables. Because of its tractability, the formula is now widely used in practical financial engineering as an approximation formula for the distribution of a (single) random variable. In this paper, the Lugannani-Rice approximation formula is derived for a general, parametrized sequence of random variables and the order estimates of the approximation are given.

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Cited in

(3)

• scientific article; zbMATH DE number 1916659 (Why is no real title available?)
• An example in which the Lugannani - Rice saddlepoint formula fails
• Tail Probability Approximations

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