Approximating Lévy processes with completely monotone jumps

DOI10.1214/14-AAP1093zbMATH Open1339.60050arXiv1404.0597OpenAlexW3102951487MaRDI QIDQ259581FDOQ259581

Alexey Kuznetsov, Daniel Hackmann

Publication date: 11 March 2016

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: L'{e}vy processes with completely monotone jumps appear frequently in various applications of probability. For example, all popular stock price models based on L'{e}vy processes (such as the Variance Gamma, CGMY/KoBoL and Normal Inverse Gaussian) belong to this class. In this paper we continue the work started in [Int. J. Theor. Appl. Finance 13 (2010) 63-91, Quant. Finance 10 (2010) 629-644] and develop a simple yet very efficient method for approximating processes with completely monotone jumps by processes with hyperexponential jumps, the latter being the most convenient class for performing numerical computations. Our approach is based on connecting L'{e}vy processes with completely monotone jumps with several areas of classical analysis, including Pad'{e} approximations, Gaussian quadrature and orthogonal polynomials.

Full work available at URL: https://arxiv.org/abs/1404.0597

Recommendations

• Approximating Lévy processes with a view to option pricing
• Approximations for the distributions of bounded variation Lévy processes
• The disorder problem for purely jump Lévy processes with completely monotone jumps
• Fluctuation theory for Lévy processes with completely monotone jumps
• Diffusion approximation of Lévy processes with a view towards finance

zbMATH Keywords

Gaussian quadraturecompletely monotone jumpshyperexponential processesJacobi polynomialsrational interpolationStieltjes functionsLévy processesPadé approximation

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Central limit and other weak theorems (60F05) Real rational functions (26C15)

Cites Work

• Financial Modelling with Jump Processes
• Title not available (Why is that?)
• Title not available (Why is that?)
• Title not available (Why is that?)
• The Variance Gamma Process and Option Pricing
• The interpolation of Pick functions
• Padé approximation of Stieltjes series
• Wiener-Hopf factorization and distribution of extrema for a family of Lévy processes
• Asian options and meromorphic Lévy processes
• Fluctuations of Lévy processes with applications. Introductory lectures
• Pricing Asian options under a hyper-exponential jump diffusion model
• Wiener-Hopf Factorization of Diffusions and Lévy Processes
• Wiener-Hopf Factorization for a Family of Lévy Processes Related to Theta Functions
• PRICES OF BARRIER AND FIRST-TOUCH DIGITAL OPTIONS IN LÉVY-DRIVEN MODELS, NEAR BARRIER
• Stieltjes and other integral representations for functions of LambertW
• APPROXIMATING LÉVY PROCESSES WITH A VIEW TO OPTION PRICING
• A transform approach to compute prices and Greeks of barrier options driven by a class of Lévy processes
• A note on Padé approximations and generalized hypergeometric functions
• Meromorphic Lévy processes and their fluctuation identities
• A Fortran 90-based multiprecision system
• Wiener-Hopf Factorization for Lévy Processes Having Positive Jumps with Rational Transforms
• Calculation of Gauss Quadrature Rules
• On the Construction of Gaussian Quadrature Rules from Modified Moments
• Padé Approximations to the Logarithm I: Derivation Via Differential Equations
• On the distribution of exponential functionals for Lévy processes with jumps of rational transform
• Explicit solutions of the exit problem for a class of Lévy processes; applications to the pricing of double-barrier options
• Fast and accurate pricing of barrier options under Lévy processes

Cited In (10)

• A new class of survival distribution for degradation processes subject to shocks
• A Computational Approach to First Passage Problems of Reflected Hyperexponential Jump Diffusion Processes
• On the role of skewness and kurtosis in tempered stable (CGMY) Lévy models in finance
• Analytic techniques for option pricing under a hyperexponential Lévy model
• Fluctuation theory for Lévy processes with completely monotone jumps
• Intra‐Horizon expected shortfall and risk structure in models with jumps
• Classical robots perturbed by Lévy processes: analysis and Lévy disturbance rejection methods
• The disorder problem for purely jump Lévy processes with completely monotone jumps
• Parisian options with jumps: a maturity–excursion randomization approach
• Ruin probabilities by Padé's method: simple moments based mixed exponential approximations (Renyi, De Vylder, Cramér-Lundberg), and high precision approximations with both light and heavy tails

This page was built for publication: Approximating Lévy processes with completely monotone jumps

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q259581)