Re: negative transition probability
Posted: March 21st, 2022, 9:11 pm
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I read this article up to and including section 3 (CIR model).How Much Do Negative Probabilities Matter in Option Pricing?: A Case of a Lattice-Based Approach for Stochastic Volatility Models
"it seems unlikely that one could exploit negative probabilities consistently as some practitioners may hope."
The situation is different with hand-crafted PDE with delta payoff. They are generalised functions (Sobolev/Schwartz) and care is needed to avoid negativity.Not needed. The delta function is handled by the jump condition and never appears to the solver under my stop/re-start scheme.