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Tue, 26 Apr 2011 08:55:33 +0200Tue, 26 Apr 2011 08:55:33 +0200Pricing American options in the Heston model: a close look on incorporating correlation
https://kluedo.ub.uni-kl.de/frontdoor/index/index/docId/2314
We introduce a refined tree method to compute option prices using the stochastic volatility model of Heston. In a first step, we model the stock and variance process as two separate trees and with transition probabilities obtained by matching tree moments up to order two against the Heston model ones. The correlation between the driving Brownian motions in the Heston model is then incorporated by the node-wise adjustment of the probabilities. This adjustment, leaving the marginals fixed, optimizes the match between tree and model correlation. In some nodes, we are even able to further match moments of higher order. Numerically this gives convergence orders faster than 1/N, where N is the number of dis- cretization steps. Accuracy of our method is checked for European option prices against a semi closed-form, and our prices for both European and American options are compared to alternative approaches.P. Ruckdeschel; T. Sayer; A. Szimayerreporthttps://kluedo.ub.uni-kl.de/frontdoor/index/index/docId/2314Tue, 26 Apr 2011 08:55:33 +0200Optimally Robust Kalman Filtering
https://kluedo.ub.uni-kl.de/frontdoor/index/index/docId/2208
We present some optimality results for robust Kalman filtering. To this end, we introduce the general setup of state space models which will not be limited to a Euclidean or time-discrete framework. We pose the problem of state reconstruction and repeat the classical existing algorithms in this context. We then extend the ideal-model setup allowing for outliers which in this context may be system-endogenous or -exogenous, inducing the somewhat conflicting goals of tracking and attenuation. In quite a general framework, we solve corresponding minimax MSE-problems for both types of outliers separately, resulting in saddle-points consisting of an optimally-robust procedure and a corresponding least favorable outlier situation. Still insisting on recursivity, we obtain an operational solution, the rLS filter and variants of it. Exactly robust-optimal filters would need knowledge of certain hard-to-compute conditional means in the ideal model; things would be much easier if these conditional means were linear. Hence, it is important to quantify the deviation of the exact conditional mean from linearity. We obtain a somewhat surprising characterization of linearity for the conditional expectation in this setting. Combining both optimal filter types (for system-endogenous and -exogenous situation) we come up with a delayed hybrid filter which is able to treat both types of outliers simultaneously. Keywords: robustness, Kalman Filter, innovation outlier, additive outlierP. Ruckdeschelreporthttps://kluedo.ub.uni-kl.de/frontdoor/index/index/docId/2208Wed, 21 Jul 2010 13:51:53 +0200Robustness properties of estimators in generalized Pareto Models
https://kluedo.ub.uni-kl.de/frontdoor/index/index/docId/2205
We study global and local robustness properties of several estimators for shape and scale in a generalized Pareto model. The estimators considered in this paper cover maximum likelihood estimators, skipped maximum likelihood estimators, moment-based estimators, Cramér-von-Mises Minimum Distance estimators, and, as a special case of quantile-based estimators, Pickands Estimator as well as variants of the latter tuned for higher finite sample breakdown point (FSBP), and lower variance. We further consider an estimator matching population median and median of absolute deviations to the empirical ones (MedMad); again, in order to improve its FSBP, we propose a variant using a suitable asymmetric Mad as constituent, and which may be tuned to achieve an expected FSBP of 34%. These estimators are compared to one-step estimators distinguished as optimal in the shrinking neighborhood setting, i.e., the most bias-robust estimator minimizing the maximal (asymptotic) bias and the estimator minimizing the maximal (asymptotic) MSE. For each of these estimators, we determine the FSBP, the influence function, as well as statistical accuracy measured by asymptotic bias, variance, and mean squared error—all evaluated uniformly on shrinking convex contamination neighborhoods. Finally, we check these asymptotic theoretical findings against finite sample behavior by an extensive simulation study.P. Ruckdeschel; N. Horbenkoreporthttps://kluedo.ub.uni-kl.de/frontdoor/index/index/docId/2205Wed, 21 Jul 2010 13:43:56 +0200