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The paper introduces an approach for the derivation of discrete time approximations for solutions of stochastic differential equations (SDEs) with time delay. The suggested approximations converge in a strong sense. Furthermore, explicit solutions for linear stochastic delay equations are given.
Persistent link: https://www.econbiz.de/10011050382
This paper considers the derivation of weak discrete time approximations for solutions of stochastic differential equations with time delay. These are suitable for Monte Carlo simulation and allow the computation of expectations for functionals of stochastic delay equations. The suggested...
Persistent link: https://www.econbiz.de/10011050988
In finance and economics the key dynamics are often specified via stochastic differential equations (SDEs) of jump-diffusion type. The class of jump-diffusion SDEs that admits explicit solutions is rather limited. Consequently, discrete time approximations are required. In this paper we give a...
Persistent link: https://www.econbiz.de/10005674128
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This paper proposes a paradigm shift in the valuation of long term contracts, away from classical no-arbitrage pricing towards pricing under the real world probability measure. In contrast to risk neutral pricing, which is a form of relative pricing, the long term average excess return of the...
Persistent link: https://www.econbiz.de/10013115192
Accurate scenario simulation methods for solutions of multi-dimensional stochastic differential equations find application in stochastic analysis, the statistics of stochastic processes and many other areas, for instance, in finance. They have been playing a crucial role as standard models in...
Persistent link: https://www.econbiz.de/10013098242
The paper analyzes the simulated long-term behavior of well diversified portfolios in continuous financial markets. It focuses on the equi-weighted index and the market portfolio. The paper illustrates that the equally weighted portfolio constitutes a good proxy of the growth optimal portfolio,...
Persistent link: https://www.econbiz.de/10013098516
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