DENSITY OF SKEW BROWNIAN MOTION AND ITS FUNCTIONALS WITH APPLICATION IN FINANCE

By A. Gairat, Vadim Shcherbakov. 2014

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We derive the joint density of a Skew Brownian motion, its last visit to the origin, its local and occupation times. The result enables us to obtain explicit analytical formulas for pricing European options under both a two‐valued local volatility model and a displaced diffusion model with constrained volatility.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/3d4b571f10e2859df6be7eda4e41ecdc2fc06ea2