Markov cubature rules for polynomial processes

DOI10.1016/J.SPA.2019.06.010zbMATH Open1457.60052arXiv1707.06849OpenAlexW2566004933WikidataQ127682811 ScholiaQ127682811MaRDI QIDQ1986009FDOQ1986009

Authors: Damir Filipović, Martin Larsson, Sergio Pulido 

Publication date: 7 April 2020

Published in: Stochastic Processes and their Applications (Search for Journal in Brave)

Abstract: We study discretizations of polynomial processes using finite state Markov processes satisfying suitable moment matching conditions. The states of these Markov processes together with their transition probabilities can be interpreted as Markov cubature rules. The polynomial property allows us to study such rules using algebraic techniques. Markov cubature rules aid the tractability of path-dependent tasks such as American option pricing in models where the underlying factors are polynomial processes.

Full work available at URL: https://arxiv.org/abs/1707.06849

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zbMATH Keywords

transition probabilitiesAmerican optionscubature ruleasymptotic momentspolynomial processtransition rate matrix

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Markov chains (discrete-time Markov processes on discrete state spaces) (60J10) Continuous-time Markov processes on general state spaces (60J25) Applications of stochastic analysis (to PDEs, etc.) (60H30) Numerical solutions to stochastic differential and integral equations (65C30) General theory of stochastic processes (60G07)

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Cited In (6)

• Markov processes and some PCF quadratic polynomials
• Abstract polynomial processes
• Cubature Method for Stochastic Volterra Integral Equations
• Polynomial processes and their applications to mathematical finance
• Quantization goes polynomial
• Spline Cubatures for Expectations of Diffusion Processes and Optimal Stopping in Higher Dimensions (with Computational Finance in View)

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