Methods for evaluating density functions of exponential functionals represented as integrals of geometric Brownian motion

DOI10.1007/S11009-005-4517-9MaRDI QIDQ2583513zbMATH OpenOpenAlexFDO

Authors Kazuyuki Ishiyama

Publication date 17 January 2006

Published in Methodology and Computing in Applied Probability (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s11009-005-4517-9

zbMATH Keywords

Asian optionBlack-Scholes modeldiffusion processesDufresne's formulageometric Brownian motionmathematical financeYor's formula

Mathematics Subject Classification ID

Brownian motion (60J65) Numerical methods (including Monte Carlo methods) (91G60)

Review text

The aim of this paper is to propose a novel approach on numerical computation of probability densities in \textit{M. Yor}'s formula [Adv. Appl. Probab. 24, No.~3, 509--531 (1992; Zbl 0765.60084)], which is used to represent exponential functionals as integrals in time of geometric Brownian motions, with applications in the theory of mathematical finance, diffusion processes in random media, and in stochastic analysis for hyperbolic spaces. Since Yor's formula is somehow complicate, the author considers the expressions of density as derived by \textit{D. Dufresne} [ibid. 33, No.~1, 223--241 (2001; Zbl 0980.60103), and shows the coincidence of the Yor's and Dufresne's formulas by numerical computations, for the values of the constant drift \(\mu= 0\) and \(\mu = 1\). As an application of Dufresne-based numerical computation for densities in the involved exponential functionals, the paper obtains a novel method to compute the price of an Asian option in the Black-Scholes model. For the numerical computations, the software package of NetNUMPAC (http:/\!/netnumpac.fuis.fukui\_u.ac.jp/) was utilized.

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Cites work

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• The value of an Asian option

Cited in

(8)

• Calculating independent contrasts for the comparative study of substitution rates
• Small-\(t\) expansion for the Hartman-Watson distribution
• The Hartman-Watson distribution revisited: asymptotics for pricing Asian options
• Monte Carlo computation of the Laplace transform of exponential Brownian functionals
• Gaussian scenario for the heat equation with quadratic potential and weakly dependent data with applications
• Stochastic life annuities
• scientific article; zbMATH DE number 7544430 (Why is no real title available?)
• Closed form modeling of evolutionary rates by exponential Brownian functionals

Describes a project that uses

Uses Software

• NetNUMPAC

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