The sum and difference of two constant elasticity of variance stochastic variables
Publication in refereed journal

香港中文大學研究人員
替代計量分析
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其它資訊
摘要We have applied the Lie-Trotter operator splitting method to model the dynamics of both the sum and difference of two correlated constant elasticity of variance (CEV) stochastic variables. Within the Lie-Trotter splitting approximation, both the sum and difference are shown to follow a shifted CEV stochastic process, and approximate probability distributions are determined in closed form. Illustrative numerical examples are presented to demonstrate the validity and accuracy of these approximate distributions. These approximate probability distributions can be used to valuate two-asset options, e.g. spread options and basket options, where the CEV variables represent the forward prices of the underlying assets. Moreover, we believe that this new approach can be extended to study the algebraic sum of N CEV variables with potential applications in pricing multi-asset options.
著者Lo C.-F.
期刊名稱Applied Mathematics - A Journal of Chinese Universities
出版年份2013
月份1
日期1
卷號4
期次11
出版社Zhejiang University Press
出版地China
頁次1503 - 1511
國際標準期刊號1005-1031
語言英式英語
關鍵詞Backward Kolmogorov Equation, Constant Elasticity of Variance Stochastic Variables, Lie-Trotter Splitting Approximation, Probability Distribution Functions

上次更新時間 2020-09-08 於 03:42