Approximation of jump diffusions in finance and economics

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Show simple item record Bruti-Liberati, N Platen, E 2009-12-21T02:36:51Z 2007-05
dc.identifier.citation Computational Economics, 2007, 29 (3-4), pp. 283 - 312
dc.identifier.issn 0927-7099
dc.identifier.other C1 en_US
dc.description.abstract In finance and economics the key dynamics are often specified via stochastic differential equations (SDEs) of jump-diffusion type. The class of jump-diffusion SDEs that admits explicit solutions is rather limited. Consequently, discrete time approximations are required. In this paper we give a survey of strong and weak numerical schemes for SDEs with jumps. Strong schemes provide pathwise approximations and therefore can be employed in scenario analysis, filtering or hedge simulation. Weak schemes are appropriate for problems such as derivative pricing or the evaluation of risk measures and expected utilities. Here only an approximation of the probability distribution of the jump-diffusion process is needed. As a framework for applications of these methods in finance and economics we use the benchmark approach. Strong approximation methods are illustrated by scenario simulations. Numerical results on the pricing of options on an index are presented using weak approximation methods. © Springer Science+Business Media, LLC 2007.
dc.language eng
dc.relation.isbasedon 10.1007/s10614-006-9066-y
dc.title Approximation of jump diffusions in finance and economics
dc.type Journal Article
dc.parent Computational Economics
dc.journal.volume 3-4
dc.journal.volume 29
dc.journal.number 3-4 en_US
dc.publocation US en_US
dc.identifier.startpage 283 en_US
dc.identifier.endpage 312 en_US BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 1403 Econometrics
dc.personcode 970685
dc.personcode 10086991
dc.percentage 100 en_US Other Economics en_US
dc.classification.type FOR-08 en_US
dc.description.keywords Benchmark approach
dc.description.keywords Discrete time approximation
dc.description.keywords Growth Optimal portfolio
dc.description.keywords Jump-diffusion processes
dc.description.keywords Simulation
dc.description.keywords Strong convergence
dc.description.keywords Weak convergence
pubs.embargo.period Not known
pubs.organisational-group /University of Technology Sydney
pubs.organisational-group /University of Technology Sydney/Faculty of Business
pubs.organisational-group /University of Technology Sydney/Faculty of Science
pubs.organisational-group /University of Technology Sydney/Strength - Quantitative Finance
utslib.copyright.status Closed Access 2015-04-15 12:17:09.805752+10
pubs.consider-herdc true
utslib.collection.history Closed (ID: 3)
utslib.collection.history School of Mathematical Sciences (ID: 340)

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