30 Pages Posted: 27 Dec 2016 Last revised: 22 Jul 2017
Date Written: July 21, 2017
We study discretizations of polynomial processes using finite state Markov processes satisfying suitable moment-matching conditions. The states of these Markov processes together with their transition probabilities can be interpreted as Markov cubature rules. The polynomial property allows us to study the existence of such rules using algebraic techniques. These rules aim to improve the tractability and ease the implementation of models where the underlying factors are polynomial processes.
Keywords: Polynomial Process, Cubature Rule, Asymptotic Moments, Transition Rate Matrix, Transition Probabilities, Negative Probabilities
JEL Classification: C63, C65
Suggested Citation: Suggested Citation
Filipović, Damir and Larsson, Martin and Pulido, Sergio, Markov Cubature Rules for Polynomial Processes (July 21, 2017). Swiss Finance Institute Research Paper No. 16-79. Available at SSRN: https://ssrn.com/abstract=2890002