Bessel processes, the integral of geometric Brownian motion, and Asian options
By P. Carr, M. Schröder. 2003
82 citations recorded by the source corpus.
This paper is motivated by questions about averages of stochastic processes which originate in mathematical finance, originally in connection with valuing the so-called Asian options. Starting with research of Yor's in 1992, these questions about exponential functionals of Brownian motion have been studied in terms of Bessel processes using Yor's 1980 Hartman-Watson theory. Consequences of this approach for valuing Asian options proper have been spelled out by Geman and Yor in 1993 whose Laplace transform results were in fact regarded as a noted advance. Unfortunately, a number of difficulties with the key results of this last contribution have surfaced which are now addressed in this paper. One of them in particular is of a principal nature and originates with the Hartman-Watson approach itself: this approach is in general applicable without modifications only if it does not involve Bessel processes of negative indices. The main mathematical contribution of this paper is the developement of three principal ways to overcome these restrictions, in particular by merging stochastics and complex analysis in what seems a novel way, and the discussion of their consequences for the valuation of Asian options proper.
Subfields: Finance
View Paper: https://www.semanticscholar.org/paper/3930a507a5277ed94a3ce4f9103ab0fc9adb135d
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Citations in the corpus
- Analytical Calculation of Risk Measures for Variable Annuity Guaranteed Benefits (2012, unknown): “The conditional tail expectation CTEα with α > ξd for the gross liability of GMDB is given by CTEα = G 1− α ∫ T 0 e−(r−δ)t tpxµx+tΦ ( ln e−(r−δ)tG− Vα F0 ; (µ− r −m)t, σ2t ) dt − F0 1− α ∫ T 0 tpxµx+t e (µ−r−m)t+σ2t/2Φ ( ln e−(r−δ)tG− Vα F0 ; (µ− r −m+ σ2)t, σ2t ) dt”
- The subleading order of two dimensional cover times (2014, background): “by the first lemma of Section 12 [8] (note that the index of a d-dimensional Bessel process is d/2− 1).”