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Bridge representation and modal-path approximation

Author

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  • Akahori, Jiro
  • Song, Xiaoming
  • Wang, Tai-Ho

Abstract

The article shows a bridge representation for the joint density of a system of stochastic processes consisting of a Brownian motion with drift coupled with a correlated fractional Brownian motion with drift. As a result, a small time approximation of the joint density is readily obtained by substituting the conditional expectation under the bridge measure by a single path: the modal-path from the initial point to the terminal point.

Suggested Citation

  • Akahori, Jiro & Song, Xiaoming & Wang, Tai-Ho, 2019. "Bridge representation and modal-path approximation," Stochastic Processes and their Applications, Elsevier, vol. 129(1), pages 174-204.
    • Handle: RePEc:eee:spapps:v:129:y:2019:i:1:p:174-204
    DOI: 10.1016/j.spa.2018.02.013
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    References listed on IDEAS

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    1. Granger, Clive W. J. & Hyung, Namwon, 2004. "Occasional structural breaks and long memory with an application to the S&P 500 absolute stock returns," Journal of Empirical Finance, Elsevier, vol. 11(3), pages 399-421, June.
    2. L. C. G. Rogers, 1997. "Arbitrage with Fractional Brownian Motion," Mathematical Finance, Wiley Blackwell, vol. 7(1), pages 95-105, January.
    3. Baudoin, Fabrice & Ouyang, Cheng, 2011. "Small-time kernel expansion for solutions of stochastic differential equations driven by fractional Brownian motions," Stochastic Processes and their Applications, Elsevier, vol. 121(4), pages 759-792, April.
    4. Bollerslev, Tim & Ole Mikkelsen, Hans, 1996. "Modeling and pricing long memory in stock market volatility," Journal of Econometrics, Elsevier, vol. 73(1), pages 151-184, July.
    5. Yamada, Toshihiro, 2015. "A formula of small time expansion for Young SDE driven by fractional Brownian motion," Statistics & Probability Letters, Elsevier, vol. 101(C), pages 64-72.
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    Cited by:

    1. Liang-Ching Lin & Li-Hsien Sun, 2019. "Modeling financial interval time series," PLOS ONE, Public Library of Science, vol. 14(2), pages 1-20, February.

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