The CEV Model Revisited

12 Pages Posted: 29 Aug 2014 Last revised: 9 Sep 2014

See all articles by Wen Cheng

Wen Cheng

Pennsylvania State University - Department of Mathematics

Tianyou Zhang

Pennsylvania State University

Date Written: September 3, 2014

Abstract

This note introduces a mathematically rigorous short time approximation of the transition density function of the CEV model. We first apply a change of variable to the CEV operator and transform it to a Schrodinger operator with an inverse square potential, and then construct a Neumann series to the new opeator under weighted Sobolev spaces. To the author’s knowledge, this is the first time that a mathematically rigorous construction for the CEV model is obtained in the financial mathematics literature.

Keywords: CEV Model

JEL Classification: Mathematics

Suggested Citation

Cheng, Wen and Zhang, Tianyou, The CEV Model Revisited (September 3, 2014). Available at SSRN: https://ssrn.com/abstract=2487669 or http://dx.doi.org/10.2139/ssrn.2487669

Wen Cheng (Contact Author)

Pennsylvania State University - Department of Mathematics ( email )

University Park
State College, PA 16802
United States

HOME PAGE: http://www.math.psu.edu/cheng

Tianyou Zhang

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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