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https://hdl.handle.net/2142/87431
Description
Title
Essays on Dynamics Models in Finance
Author(s)
Li, Minqiang
Issue Date
2005
Doctoral Committee Chair(s)
Neil Pearson
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Language
eng
Abstract
The third chapter is on a damped diffusion framework in financial modelling. With the popular CEV process for the underlying stock or stochastic volatility, the martingale option pricing approach can fail. I propose a flexible damped diffusion framework to overcome these drawbacks. This framework is useful in many areas of financial modeling. To perform MLE, I express the small-time expansion developed by Ait-Sahalia in the untransformed variable and obtain explicitly the second-order coefficient. This result makes it easier to approximate the transition densities of diffusion processes.
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