Research articles
ScienceAsia 48 (2022):ID 240-246 |doi:
10.2306/scienceasia1513-1874.2022.033
Normal approximation for call function of locally dependent random variables
Suporn Jongpreechaharn, Kritsana Neammaneea,b,*
ABSTRACT: A mean for the call function of random variable W, E(W ? k)
+
, where k is a positive real number, is useful
and important, for instance, in a collateralized debt obligation (CDO) tranche pricing. In previous works, E(W ? k)
+
is approximated by normal approximation where W is a sum of independent random variables. However, W in this
paper is extended to be a sum of locally dependent random variables. We propose a uniform bound on the normal
approximation by using the Stein?s method.
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| a |
Department of Mathematics and Computer Science, Faculty of Science, Chulalongkorn University,
Bangkok 10330 Thailand |
| b |
Centre of Excellence in Mathematics, Commission on Higher Education, Bangkok, Thailand |
* Corresponding author, E-mail: kritsana.n@chula.ac.th
Received 7 Jun 2021, Accepted 29 Nov 2021
|
