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Probability and Computational Finance Seminar
Scott Robertson
Carnegie Mellon University
Title: Continuous Time Perpetuities and the Time Reversal of Diffusions

Abstract: In this talk we consider the problem of obtaining the distribution of a continuous time perpetuity, where the non-discounted cash flow rate is determined by an ergodic diffusion. Using results regarding the time reversal of diffusions, we identify the distribution of the perpetuity with the invariant measure associated to a certain (different) ergodic diffusion. This enables efficient estimation of the distribution via simulation and, in certain instances, an explicit formula for the distribution. Time permitting, we will talk about how Large Deviations Principles and results concerning Couplings of diffusions can be used to estimate rates of convergence, thus providing upper bounds for how long simulations must be run when obtaining the distribution.

Date: Monday, October 28, 2013
Time: 5:00 pm
Location: Wean Hall 6423
Submitted by:  Scott Robertson