![Markovian Projection onto a Displaced Diffusion](/sites/default/files/styles/small/public/image/2024-01/Numerix_Research_Two_Dimensional_Markovian_Model_for_Dynamics_of_Aggregate_Credit_Loss_Lopatin_Misirpashev_0.jpg?itok=aRqdUTHC)
Markovian Projection onto a Displaced Diffusion
In this paper, we develop a systematic approach to Markovian projection onto an effective displaced diffusion, and work out a set of computationally efficient formulas valid for a large class of non-Markovian underlying processes. The generic derivation is followed by applications, including the calculation of FX options in cross-currency models and swaption pricing in LIBOR Market Models, where we are able to recover in an unambiguous way many known analytical approximations and derive several new ones.
Authors: A. Antonov and T. Misirpashaev
In this paper, we develop a systematic approach to Markovian projection onto an effective displaced diffusion, and work out a set of computationally efficient formulas valid for a large class of non-Markovian underlying processes. The generic derivation is followed by applications, including the calculation of FX options in cross-currency models and swaption pricing in LIBOR Market Models, where we are able to recover in an unambiguous way many known analytical approximations and derive several new ones.
Authors: A. Antonov and T. Misirpashaev
Authors
![Dr. Alexandre Antonov](/sites/default/files/styles/x_small_square_1_1/public/image/2024-02/Dr.%20Alexandre%20Antonov.jpeg?h=55541bb6&itok=f-aF1kGu)
Dr. Alexandre Antonov
Dr. Antonov received his PhD degree from the Landau Institute for Theoretical Physics in 1997 and joined Numerix in 1998, where he currently works as a Senior Vice President of Quantitative Research. His activity is concentrated on modeling and numerical methods for interest rates, cross currency, hybrid, credit and CVA. Dr. Antonov is a published author for multiple publications in mathematical finance, including RISK magazine and a frequent speaker at financial conferences.