Transition probabilities for diffusion equations by means of path integrals.

In this paper, we investigate the transition probabilities for diffusion processes. In a first part, we show how transition probabilities for rather general diffusion processes can always be expressed by means of a path integral. For several classical models, an exact calculation is possible, leading to analytical expressions for the transition probabilities and for the maximum probability paths. A second part consists of the derivation of an analytical approximation for the transition probability, which is useful in case the path integral is too complex to be calculated. The approximation we present is based on a convex combination of a new analytical upper and lower bound for the transition probabilities. The fact that the approximation is analytical has some important advantages, e.g. for the investigation of Asian options. Finally, we demonstrate the accuracy of the approximation by means of a few graphical illustrationsAdvantages; Comonotonicity; Diffusion processes; Models; Option; Path integral;

Pricing exotic options under local volatility.

Optimal; Optimal portfolio selection; Portfolio; Selection; Cash flow; Capital at risk; Risk; Pricing; Options;

Solution of the Fokker-Planck equation with boundary conditions by Feynman-Kac integration.

In this paper, we apply the results about d and d-function perturbations in order to formulate within the Feynman-Kac integration the solution of the forward Fokker-Planck equation subject to Dirichlet or Neumann boundary conditions. We introduce the concept of convex order to derive upper and lower bounds for path integrals with d and d- functions in the integrand. We suggest the use of bounds as an approximation for the solution.Feynman-Kac integration; Functions; Integration; Path integral; Perturbations theory; SDE;

A straightforward analytical calculation of the distribution of an annuity certain with stochastic interest rate.

Starting from the moment generating function of the annuity certain with stochastic interest rate written by means of a time discretization of the Wiener process as an n-fold integral, a straightforward evaluation of the corresponding distribution function is obtained letting n tend to infinity. The advantage of the present method consists in the direct calculation technique of the n-fold integral, instead of using moment calculation or differential equations, and in the possible applicability of the present method to varying annuities which could be applied to IBNR results, as well as to pension fund calculations, etc.Distribution; Annuities; Processes; Evaluation;

Sound-propagation gap in fluid mixtures

We discuss the behavior of the extended sound modes of a dense binary hard-sphere mixture. In a dense simple hard-sphere fluid the Enskog theory predicts a gap in the sound propagation at large wave vectors. In a binary mixture the gap is only present for low concentrations of one of the two species. At intermediate concentrations sound modes are always propagating. This behavior is not affected by the mass difference of the two species, but it only depends on the packing fractions. The gap is absent when the packing fractions are comparable and the mixture structurally resembles a metallic glass.Comment: Published; withdrawn since ordering in archive gives misleading impression of new publicatio

An investigation on the use of copulas when calculating general cash flow distributions.

In a paper of 2000, Kaas, Dhaene and Goovaerts investigate the present value of a rather general cash flow as a special case of sums of dependent risks. Making use of comonotonic risks, they derive upper and lower bounds for the distribution of the present value, in the sense of convex ordering. These bounds are very close to the real distribution in case all payments have the same sign; however, if there are both positive and negative payments, the upper bounds perform rather badly. In the present contribution we show what happens when solving this problem by means of copulas. The idea consists of splitting up the total present value in the difference of two present values with positive payments. Making use of a copula as an approximation for the joint distribution of the two sums, an approximation for the distribution of the original present value can be derived.Approximation; Cash flow; Convex order; copulas; Dependent risk; Distribution; Lower bounds; present value; Research; Risk; Sign; Value;

On the distribution of cash-flows using Esscher transforms.

In their seminal paper, Gerber and Shiu (1994) introduced the concept of the Esscher transform for option pricing. As examples they considered the shifted Poisson process, the random walk, a shifted gamma process and a shifted inverse Gaussian process to describe the logarithm of the stock price. In the present paper it is shown how upper and lower bounds in convex order can be obtained when we use these types of models to describe the financial stochasticity for a given cash-flow.Cash flow; Pricing; Processes; Models; Model;

On the use of copula for calculating the present value of a general cash flow.

present value; Value;