Bessel bridges decomposition with varying dimension: applications to finance

DOI10.1007/S10959-013-0496-XzbMATH Open1307.60077arXiv1205.0711OpenAlexW2126660031MaRDI QIDQ482808FDOQ482808

Authors: Gabriel Faraud, Stéphane Goutte 

Publication date: 6 January 2015

Published in: Journal of Theoretical Probability (Search for Journal in Brave)

Abstract: We consider a class of stochastic processes containing the classical and well-studied class of Squared Bessel processes. Our model, however, allows the dimension be a function of the time. We first give some classical results in a larger context where a time-varying drift term can be added. Then in the non-drifted case we extend many results already proven in the case of classical Bessel processes to our context. Our deepest result is a decomposition of the Bridge process associated to this generalized squared Bessel process, much similar to the much celebrated result of J. Pitman and M. Yor. On a more practical point of view, we give a methodology to compute the Laplace transform of additive functionals of our process and the associated bridge. This permits in particular to get directly access to the joint distribution of the value at t of the process and its integral. We finally give some financial applications to illustrate the panel of applications of our results.

Full work available at URL: https://arxiv.org/abs/1205.0711

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zbMATH Keywords

Laplace transformsquared Bessel processSDEfinancial applicationsBessel bridges decomposition[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=L%EF%BF%BD%EF%BF%BDvy-It%EF%BF%BD%EF%BF%BD+representation&go=Go L��vy-It�� representation]

Mathematics Subject Classification ID

Credit risk (91G40) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Stochastic models in economics (91B70) Financial applications of other theories (91G80) General theory of stochastic processes (60G07)

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Cited In (8)

• Title not available (Why is that?)
• The Gorin-Shkolnikov identity and its random tree generalization
• Pricing model for zero coupon bonds driven by Bessel-squared interest processes with a jump
• The spectral representation of Bessel processes with constant drift: applications in queueing and finance
• On matching diffusions, Laplace transforms and partial differential equations
• Title not available (Why is that?)
• Squared Bessel processes and their applications to the square root interest rate model
• Dimension-wise integration of high-dimensional functions with applications to finance

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