Density approximations for multivariate affine jump-diffusion processes

DOI10.1016/J.JECONOM.2012.12.003zbMATH Open1284.62110OpenAlexW3124382693MaRDI QIDQ2442452FDOQ2442452

Authors: Damir Filipović, Eberhard Mayerhofer, Paul Schneider 

Publication date: 3 April 2014

Published in: Journal of Econometrics (Search for Journal in Brave)

Abstract: We introduce closed-form transition density expansions for multivariate affine jump-diffusion processes. The expansions rely on a general approximation theory which we develop in weighted Hilbert spaces for random variables which possess all polynomial moments. We establish parametric conditions which guarantee existence and differentiability of transition densities of affine models and show how they naturally fit into the approximation framework. Empirical applications in credit risk, likelihood inference, and option pricing highlight the usefulness of our expansions. The approximations are extremely fast to evaluate, and they perform very accurately and numerically stable.

Full work available at URL: https://arxiv.org/abs/1104.5326

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zbMATH Keywords

asymptotic expansionorthogonal polynomialsaffine processesdensity approximation

Mathematics Subject Classification ID

Diffusion processes (60J60) Approximations to statistical distributions (nonasymptotic) (62E17) Financial applications of other theories (91G80)

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Cited In (50)

• Variance swaps with mean reversion and multi-factor variance
• NONPARAMETRIC DENSITY ESTIMATION BY B-SPLINE DUALITY
• On the anisotropic stable JCIR process
• A new delta expansion for multivariate diffusions via the Itô-Taylor expansion
• It only takes a few moments to hedge options
• A general closed form option pricing formula
• Pricing Asian options with correlators
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• Moment formulas for multitype continuous state and continuous time branching process with immigration
• The Jacobi stochastic volatility model
• Moment-matching approximations for stochastic sums in non-Gaussian Ornstein-Uhlenbeck models
• On the boundary behavior of multi-type continuous-state branching processes with immigration
• Multivariate Jacobi process with application to smooth transitions
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• Polynomial jump-diffusion models
• Asymptotic properties of maximum likelihood estimator for the growth rate for a jump-type CIR process based on continuous time observations
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