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Pricing approximations and error estimates for local L\'evy-type models with default

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  • Matthew Lorig
  • Stefano Pagliarani
  • Andrea Pascucci

Abstract

We find approximate solutions of partial integro-differential equations, which arise in financial models when defaultable assets are described by general scalar L\'evy-type stochastic processes. We derive rigorous error bounds for the approximate solutions. We also provide numerical examples illustrating the usefulness and versatility of our methods in a variety of financial settings.

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  • Matthew Lorig & Stefano Pagliarani & Andrea Pascucci, 2013. "Pricing approximations and error estimates for local L\'evy-type models with default," Papers 1304.1849, arXiv.org, revised Nov 2014.
    • Handle: RePEc:arx:papers:1304.1849
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    File URL: http://arxiv.org/pdf/1304.1849
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    Cited by:

    1. Matthew Lorig & Stefano Pagliarani & Andrea Pascucci, 2014. "Asymptotics for $d$-dimensional L\'evy-type processes," Papers 1404.3153, arXiv.org, revised Nov 2014.
    2. Matthew Lorig & Stefano Pagliarani & Andrea Pascucci, 2013. "A family of density expansions for L\'evy-type processes," Papers 1312.7328, arXiv.org.
    3. Matthew Lorig & Stefano Pagliarani & Andrea Pascucci, 2017. "Explicit Implied Volatilities For Multifactor Local-Stochastic Volatility Models," Mathematical Finance, Wiley Blackwell, vol. 27(3), pages 926-960, July.

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