Boundary Conditions for Computing Densities in Hybrid Models via PDE Methods

9 Pages Posted: 5 Aug 2008

Date Written: July 31, 2008

Abstract

This paper addresses the problem of specifying boundary conditions for Fokker-Planck PDE for reflecting diffusions arising in finance. Main focus is the CIR model, but techniques presented are readily applicable to other models with reflecting boundaries.

Keywords: Fokker-Planck, boundary conditions, reflecting boundary, stochastic volatility

JEL Classification: C63, G13

Suggested Citation

Lucic, Vladimir, Boundary Conditions for Computing Densities in Hybrid Models via PDE Methods (July 31, 2008). Available at SSRN: https://ssrn.com/abstract=1191962 or http://dx.doi.org/10.2139/ssrn.1191962

Vladimir Lucic (Contact Author)

Macquarie Group ( email )

Sydney
Australia

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