Closed-Form Expansions for Transition Densities of Convenience Yield Processes

Abstract

In this paper, we derive closed-form expansions for transition densities of convenience yield processes modeled by using extended Cox-Ingersoll-Ross (ECIR) processes. The closed-form expansions can be used for all cases of model having appropriate drift and diffusion coefficients. In terms of the efficiency, the closed-form expansions are close to the exact transition densities when the number of terms in the expansions is large and the time step size is small.

Keywords

• Closed-form expansions
• transition densities
• convenience yield
• ECIR processes