A PATH INTEGRAL APPROACH TO DERIVATIVE SECURITY PRICING I: FORMALISM AND ANALYTICAL RESULTS
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Abstract: We use a path integral approach for solving the stochastic equations underlying the financial markets, and we show the equivalence between the path integral and the usual SDE and PDE methods. We analyze both the one-dimensional and the multi-dimensional cases, with point dependent drift and volatility, and describe a covariant formulation which allows general changes of variables. Finally we apply the method to some economic models with analytical solutions. In particular, we evaluate the expectation value of functionals which correspond to quantities of financial interest.
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Cites work
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Cited in
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- Multi-asset Black-Scholes model as a variable second class constrained dynamical system
- Quantifying risks with exact analytical solutions of derivative pricing distribution
- Feynman path integrals and asymptotic expansions for transition probability densities of some Lévy driven financial markets
- Option pricing, stochastic volatility, singular dynamics and constrained path integrals
- Path integral pricing of outside barrier Asian options
- Path integral pricing of wasabi option in the Black-Scholes model
- Dynamic optimization and its relation to classical and quantum constrained systems
- A path integral based model for stocks and order dynamics
- The quantum dark side of the optimal control theory
- A model for stocks dynamics based on a non-Gaussian path integral
- Optimization of market stochastic dynamics
- A method for the calculation of characteristics for the solution to stochastic differential equations
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- THE EXPONENT EXPANSION: AN EFFECTIVE APPROXIMATION OF TRANSITION PROBABILITIES OF DIFFUSION PROCESSES AND PRICING KERNELS OF FINANCIAL DERIVATIVES
- Exit Times and Poisson Kernels of the Ornstein–Uhlenbeck Diffusion
- A path-integral approximation for non-linear diffusions
- Pricing exotic options in a path integral approach
- On the equivalence of operator and combinatorial approaches for one-step random Markov processes
- Semiclassical approximation of functional integrals containing the centrifugal potential
- Application of semiclassical approximation to stochastic differential equations
- Approximate calculation of functional integrals arising from the operator approach
- On numerical density approximations of solutions of SDEs with unbounded coefficients
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