Abstract
Abstract This chapter introduces large deviation techniques and surveys recent applications in finance. Large deviations deal with the theory of rare events and can be used to establish exponential bounds on the probability of such events. If we can establish a so-called large deviation principle for a family of random variables this provides information not only on convergence but also on the speed of convergence. We begin with an introduction to large deviations and outline some of the major results. We discuss a number of applications in finance. These include applications in portfolio management, risk management and Monte Carlo simulations. We also describe some recent work which uses concepts from large deviations to analyze incomplete markets and we illustrate this application with stochastic volatility models.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Handbooks in Operations Research and Management Science
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
