Approximating Lévy processes with completely monotone jumps
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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.
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Cited in
(12)- A new class of survival distribution for degradation processes subject to shocks
- Parisian options with jumps: a maturity-excursion randomization approach
- 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
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- Fluctuation theory for Lévy processes with completely monotone jumps
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- Intra‐Horizon expected shortfall and risk structure in models with jumps
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- Approximations for the distributions of bounded variation Lévy processes
- The disorder problem for purely jump Lévy processes with completely monotone jumps
- 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
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