- Title
- Singular diffusions, constant elasticity of variance processes and logarithmic rates of return
- Creator
- Liu, Siqi; Melia, Adrian; Song, Xiaojing; Tippett, Mark
- Relation
- The European Journal of Finance Vol. 26, Issue 9, p. 837-853
- Publisher Link
- http://dx.doi.org/10.1080/1351847x.2019.1709526
- Publisher
- Routledge
- Resource Type
- journal article
- Date
- 2020
- Description
- The singular diffusion processes developed by William Feller occupy a central role in a number of disciplines including economics and finance. We identify a fundamental inconsistency between the probability densities stated in the Feller papers for these singular diffusion processes. Moreover, we apply the method of group-invariance to resolve this inconsistency. Since logarithmic returns are of considerable importance in economics and finance, we also illustrate a procedure for determining the conditional expected logarithmic rate of return for state variables which evolve in terms of the singular diffusion processes on which the Feller papers are based.
- Subject
- constant elasticity of variance (CEV); Kolmogorov equation; group invariance; logarithmic return; singular diffusion process
- Identifier
- http://hdl.handle.net/1959.13/1438376
- Identifier
- uon:40589
- Identifier
- ISSN:1351-847X
- Language
- eng
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