Finite Mixture Approximation of CARMA(p,q) Models

@article{Mercuri2020FiniteMA,
  title={Finite Mixture Approximation of CARMA(p,q) Models},
  author={Lorenzo Mercuri and Andrea Perchiazzo and Edit Rroji},
  journal={arXiv: Computational Finance},
  year={2020}
}
  • Lorenzo Mercuri, Andrea Perchiazzo, Edit Rroji
  • Published 2020
  • Mathematics, Economics
  • arXiv: Computational Finance
  • In this paper we show how to approximate the transition density of a CARMA(p, q) model driven by means of a time changed Brownian Motion based on the Gauss-Laguerre quadrature. We then provide an analytical formula for option prices when the log price follows a CARMA(p, q) model. We also propose an estimation procedure based on the approximated likelihood density. 

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