Inverting the Markovian projection for pure jump processes
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arXiv
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| Hauptverfasser: | , |
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| Format: | Preprint |
| Veröffentlicht: |
2024
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| _version_ | 1866915631445573632 |
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| author | Larsson, Martin Long, Shukun |
| author_facet | Larsson, Martin Long, Shukun |
| contents | Markovian projections arise in problems where we aim to mimic the one-dimensional marginal laws of an Itô semimartingale by using another Itô process with Markovian dynamics. In applications, Markovian projections are useful in calibrating jump-diffusion models with both local and stochastic features, leading to the study of the inversion problems. In this paper, we invert the Markovian projections for pure jump processes, which can be used to construct calibrated local stochastic intensity (LSI) models for credit risk applications. Such models are jump process analogues of the notoriously hard to construct local stochastic volatility (LSV) models used in equity modeling. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2412_04589 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Inverting the Markovian projection for pure jump processes Larsson, Martin Long, Shukun Probability Mathematical Finance Markovian projections arise in problems where we aim to mimic the one-dimensional marginal laws of an Itô semimartingale by using another Itô process with Markovian dynamics. In applications, Markovian projections are useful in calibrating jump-diffusion models with both local and stochastic features, leading to the study of the inversion problems. In this paper, we invert the Markovian projections for pure jump processes, which can be used to construct calibrated local stochastic intensity (LSI) models for credit risk applications. Such models are jump process analogues of the notoriously hard to construct local stochastic volatility (LSV) models used in equity modeling. |
| title | Inverting the Markovian projection for pure jump processes |
| topic | Probability Mathematical Finance |
| url | https://arxiv.org/abs/2412.04589 |