Stochastic expansions for averaged diffusions and applications to pricing
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Fri, 06/05/2011 14:15 |
Prof Emmanuel Gobet (Ecole Polytechnique) |
Nomura Seminar  |
DH 1st floor SR |
| We derive a general methodology to approximate the law of the average of the marginal of diffusion processes. The average is computed w.r.t. a general parameter that is involved in the diffusion dynamics. Our approach is suitable to compute expectations of functions of arithmetic or geometric means. In the context of small SDE coefficients, we establish an expansion, which terms are explicit and easy to compute. We also provide non asymptotic error bounds. Applications to the pricing of basket options, Asian options or commodities options are then presented. This talk is based on a joint work with M. Miri. | |||