Abstract
We present a simplified approach to the analytical approximation of the transition density related to a general local volatility model. The methodology is sufficiently flexible to be extended to time-dependent coefficients, multi-dimensional stochastic volatility models, degenerate parabolic PDEs related to Asian options and also to include jumps.
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Pagliarani, S., Pascucci, A. Analytical approximation of the transition density in a local volatility model. centr.eur.j.math. 10, 250–270 (2012). https://doi.org/10.2478/s11533-011-0115-y
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DOI: https://doi.org/10.2478/s11533-011-0115-y