In this paper we show how to approximate the transition density of a CARMA(p,q) model driven by a time-changed Brownian motion based on the Gauss-Laguerre quadrature. This approach allows us to introduce an estimation method that maximizes a likelihood function constructed using the approximated transition density. We also provide formulas for the futures term structures and for prices of options written on futures when the underlying follows an exponential CARMA(p,q) model.

Mercuri, L., Perchiazzo, A., Rroji, E. (2021). Finite Mixture Approximation of CARMA(p,q) Models. SIAM JOURNAL ON FINANCIAL MATHEMATICS, 12(4), 1416-1458 [10.1137/20M1363248].

Finite Mixture Approximation of CARMA(p,q) Models

Rroji, E
2021

Abstract

In this paper we show how to approximate the transition density of a CARMA(p,q) model driven by a time-changed Brownian motion based on the Gauss-Laguerre quadrature. This approach allows us to introduce an estimation method that maximizes a likelihood function constructed using the approximated transition density. We also provide formulas for the futures term structures and for prices of options written on futures when the underlying follows an exponential CARMA(p,q) model.
Articolo in rivista - Articolo scientifico
continuous-time ARMA processes; pricing derivatives; transition density;
English
2021
12
4
1416
1458
reserved
Mercuri, L., Perchiazzo, A., Rroji, E. (2021). Finite Mixture Approximation of CARMA(p,q) Models. SIAM JOURNAL ON FINANCIAL MATHEMATICS, 12(4), 1416-1458 [10.1137/20M1363248].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/343079
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