Well, there is a very popular stochastic process in finance variously known asFeller sqrt process/CIR process/Heston volatility process (all these are essentially the same).The transition density is given in terms of those modified Bessel funcs. More generally, if you throw a dart at some paper in finance that uses a special function,excluding Erf function-related (cumulative normal, etc.),I will guess 90% of the time is it either Bessels or confluent hypergeometric.
Last edited by Alan
on October 28th, 2011, 10:00 pm, edited 1 time in total.