A Diffusion Limit for Generalized Correlated Random Walks
نویسنده
چکیده
A generalized correlated random walk is a process of partial sums Xk = ∑kj=1 Yj such that (X, Y ) forms a Markov chain. For a sequence (X) of such processes in which each Y j takes only two values, we prove weak convergence to a diffusion process whose generator is explicitly described in terms of the limiting behaviour of the transition probabilities for the Y. Applications include asymptotics of option replication under transaction costs and approximation of a given diffusion by regular recombining binomial trees.
منابع مشابه
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