Questions tagged [wienerprocess]

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Arbitrage portfolio example

Can you give me a concrete example of a self financing portfolio which gives arbitrage opportunity in the two-dimensional Black-Scholes model? By the two-dimensional Black-Scholes model I mean $$dS_{1}...
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The distribution of the jump diffusion process

In the Merton jump diffusion model the process of the share price can be expressed as $$S_{t}=S_{0}\cdot\exp\left\{ X_{t}\right\} ,$$ where $$X_{t}=\mu t+\sigma W_{t}+\sum_{i=1}^{N_{t}}Y_{i}.$$ Here $...
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Expected value of a wiener process on an infinite time horizon with a barrier

Say I have a wiener process with $X(0) = X_0>0$ and the dynamics \begin{equation} dX(t) = \begin{cases} -\mu dt + \sigma X(t) dW(t)^{\mathbb{Q}} & \mathrm{for\ } X(t)>0\\ 0 & \mathrm{...
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CIR model. Is there a closed-form solution or even a good proxy of analytical solution?

Is there a closed-form (analytical) solution for the Cox-Ingersoll-Ross SDE \begin{equation} dr_t=k_r(\theta_r-r_t)dt+\sigma_r\sqrt{r_t}dW_t\tag{1} \end{equation} ? Notice that $\{r_t\}$ is our ...
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How to expand lognormal approximation of Brownian motion

How can we expand this sum? $\sum_{i=1}^n (e^{rt_i-\frac{1}{2}\sigma^2t_i+\sigma w_{t_i}})^2$ where: $w_{t_i}$ is a standard Brownian motion. If we let $m_t=e^{-\frac{1}{2}\sigma^2t_i+\sigma w_{t_i}}$...
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Solving for roots of a stochastic pay-off function

I have a pay-off function for a derivative which is defined by the Heaviside difference between $G$ and $B$ shifted by $-F$. To find the value of $V_{t=0}$, I need to find $\tau$ when $\frac{dV}{dt} = ...