Functionals of exponential Brownian motion and divided differences

DOI10.1016/J.CAM.2011.06.010zbMATH Open1228.91073arXiv1006.1996OpenAlexW2963251687MaRDI QIDQ651098FDOQ651098

Authors: Brad J. C. Baxter, R. G. M. Brummelhuis 

Publication date: 8 December 2011

Published in: Journal of Computational and Applied Mathematics (Search for Journal in Brave)

Abstract: We provide a surprising new application of classical approximation theory to a fundamental asset-pricing model of mathematical finance. Specifically, we calculate an analytic value for the correlation coefficient between exponential Brownian motion and its time average, and we find the use of divided differences greatly elucidates formulae, providing a path to several new results. As applications, we find that this correlation coefficient is always at least $1/sqrt2$ and, via the Hermite--Genocchi integral relation, demonstrate that all moments of the time average are certain divided differences of the exponential function. We also prove that these moments agree with the somewhat more complex formulae obtained by Oshanin and Yor.

Full work available at URL: https://arxiv.org/abs/1006.1996

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zbMATH Keywords

momentsBrownian motiondivided differencesAsian options

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Numerical interpolation (65D05) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35)

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Cited In (7)

• Exponential functionals of Brownian motion. II: Some related diffusion processes
• On the density for sums of independent exponential, Erlang and gamma variates
• On the density for sums of independent Mittag-Leffler variates with common order
• On the moments of the integrated geometric Brownian motion
• Title not available (Why is that?)
• Divided differences in noncommutative geometry: rearrangement lemma, functional calculus and expansional formula
• On some exponential functionals of Brownian motion

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