Finite Mixture Approximation of CARMA(p,q) Models
Computational Finance
2020-05-25 v2
Abstract
In this paper we show how to approximate the transition density of a CARMA(p, q) model driven by means of a time changed Brownian Motion based on the Gauss-Laguerre quadrature. We then provide an analytical formula for option prices when the log price follows a CARMA(p, q) model. We also propose an estimation procedure based on the approximated likelihood density.
Keywords
Cite
@article{arxiv.2005.10130,
title = {Finite Mixture Approximation of CARMA(p,q) Models},
author = {Lorenzo Mercuri and Andrea Perchiazzo and Edit Rroji},
journal= {arXiv preprint arXiv:2005.10130},
year = {2020}
}
Comments
30 Pages, 13 figures