Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
A new improvement scheme for approximation methods of probability density functions
Need to know
- A new scheme for improving an approximation method of a probability density function is developed.
- The authors achieve the improvement of an approximation, whatever the starting approximate density.
Abstract
ABSTRACT
This paper develops a new scheme for improving an approximation method of a probability density function, which is inspired by the idea in the Hilbert space projection theorem. Moreover, we apply Dykstra's cyclic projections algorithm for its implementation. Numerical examples for application to an asymptotic expansion method in option pricing demonstrate the effectiveness of our scheme under the stochastic alpha, beta, rho (SABR) model.
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