Analytical approximation of the transition density in a local volatility model

Stefano Pagliarani 1  and Andrea Pascucci 2
  • 1 Università di Padova
  • 2 Università di Bologna


We present a simplified approach to the analytical approximation of the transition density related to a general local volatility model. The methodology is sufficiently flexible to be extended to time-dependent coefficients, multi-dimensional stochastic volatility models, degenerate parabolic PDEs related to Asian options and also to include jumps.

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