Continuous-time perpetuities and time reversal of diffusions

DOI10.1007/S00780-016-0308-0zbMATH Open1390.91303DBLPjournals/fs/KardarasR17arXiv1411.7551OpenAlexW2181491881WikidataQ59615534 ScholiaQ59615534MaRDI QIDQ503390FDOQ503390

Authors: Constantinos Kardaras, Scott Robertson 

Publication date: 12 January 2017

Published in: Finance and Stochastics (Search for Journal in Brave)

Abstract: We consider the problem of estimating the joint distribution of a continuous-time perpetuity and the underlying factors which govern the cash flow rate, in an ergodic Markov model. Two approaches are used to obtain the distribution. The first identifies a partial differential equation for the conditional cumulative distribution function of the perpetuity given the initial factor value, which under certain conditions ensures the existence of a density for the perpetuity. The second (and more general) approach, identifies the joint law as the stationary distribution of an ergodic multi-dimensional diffusion using techniques of time reversal. This later approach allows for efficient use of Monte-Carlo simulation when estimating the distribution, as the distribution is obtained by sampling a single path of the reversed process.

Full work available at URL: https://arxiv.org/abs/1411.7551

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zbMATH Keywords

Monte Carlo simulationtime reversalperpetuitiesergodic diffusions

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Diffusion processes (60J60)

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Cited In (6)

• On inverse-power Poisson functionals
• On distributions of exponential functionals of the processes with independent increments
• Approximations for the distribution of perpetuities with small discount rates
• Time reversal of infinite-dimensional diffusions
• Time reversal of Volterra processes driven stochastic differential equations
• On Exponential Functionals of Processes with Independent Increments

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