Logo
Munich Personal RePEc Archive

Alpha-root Processes for Derivatives pricing

Balakrishna, BS (2010): Alpha-root Processes for Derivatives pricing.

Warning
There is a more recent version of this item available.
[thumbnail of MPRA_paper_20035.pdf]
Preview
PDF
MPRA_paper_20035.pdf

Download (282kB) | Preview

Abstract

A class of mean reverting positive stochastic processes driven by alpha-stable distributions are discussed. A subclass of affine processes, they are referred to here as alpha-root processes in analogy to the square root process or the Cox-Ingersoll-Ross process derived from the Brownian motion. Being affine, they provide semi-analytical results for the implied term structures as well as for the characteristic exponents for their associated distributions. Their use has not been appreciated in the field perhaps due to lack of an efficient numerical algorithm to supplement their semi-analytical results. The present article introduces a formulation that admits an efficient simulation algorithm to enable an extensive investigation of their properties.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.