ENGLISH

Stochastic calculus of variations in mathematical finance

By Paul Malliavin , Anton Thalmaier

Book information

Publisher
Springer
Year
2006
ISBN
9783540434313, 3-540-43431-3
LCC
HG106 .M35 2006
Open Library ID
OL21575367M
Language
english
Format
PDF
Filesize
947 kB (969812 bytes)
Series
Springer finance
Edition
1
Pages
147\147
Library
Kolxo3
Time added
2009-07-20 03:45:11

Description

Malliavin calculus provides an infinite-dimensional differential calculus in the context of continuous paths stochastic processes. The calculus includes formulae of integration by parts and Sobolev spaces of differentiable functions defined on a probability space. This new book, demonstrating the relevance of Malliavin calculus for Mathematical Finance, starts with an exposition from scratch of this theory. Greeks (price sensitivities) are reinterpreted in terms of Malliavin calculus. Integration by parts formulae provide stable Monte Carlo schemes for numerical valuation of digital options. Finite-dimensional projections of infinite-dimensional Sobolev spaces lead to Monte Carlo computations of conditional expectations useful for computing American options. Weak convergence of numerical integration of SDE is interpreted as a functional belonging to a Sobolev space of negative order. Insider information is expressed as an infinite-dimensional drift. The last chapter gives an introduction to the same objects in the context of jump processes where incomplete markets appear.

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