This paper proposes a simple and novel approach based on solving a partial differential equation (PDE) to establish the concise analytical formulas for a conditional moment and mixed moment of the Jacobi process with constant parameters, accomplished by including random fluctuations with an asymmetric Wiener process and without any knowledge of the transition probability density function. Our idea involves a system with a recurrence differential equation which leads to the PDE by involving an asymmetric matrix. Then, by using Itô’s lemma, all formulas for the Jacobi process with constant parameters as well as time-dependent parameters are extended to the generalized stochastic correlation processes. In addition, their statistical properties are provided in closed forms. Finally, to illustrate applications of the proposed formulas in practice, estimations of parametric methods based on the moments are mentioned, particularly in the method of moments estimators.

The stochastic differential equation (SDE) has been used to model various phenomena and investigate their properties. Conditional moments of stochastic processes can be used to price financial derivatives whose payoffs depend on conditional moments of underlying assets. In general, the transition probability density function (PDF) of a stochastic process is often unavailable in closed form. Thus, the conditional moments, which can be directly computed by applying the transition PDFs, may be unavailable in closed form. In this work, we studied an inhomogeneous nonlinear drift constant elasticity of variance (IND-CEV) process, which is a class of diffusions that have time-dependent parameter functions; therefore, their sample paths are asymmetric. The closed-form formulas for conditional moments of the IND-CEV process were derived without having a condition on eigenfunctions or the transition PDF. The analytical results were examined through Monte Carlo simulations.

Several financial instruments have been thoroughly calculated via the price of an underlying asset, which can be regarded as a solution of a stochastic differential equation (SDE), for example the moment swap and its exotic types that encourage investors in markets to trade volatility on payoff and are especially beneficial for hedging on volatility risk. In the past few decades, numerous studies about conditional moments from various SDEs have been conducted. However, some existing results are not in closed forms, which are more difficult to apply than simply using Monte Carlo (MC) simulations. To overcome this issue, this paper presents an efficient closed-form formula to price generalized swaps for discrete sampling times under the inhomogeneous Heston model, which is the Heston model with time-parameter functions. The obtained formulas are based on the infinitesimal generator and solving a recurrence relation. These formulas are expressed in an explicit and general form. An investigation of the essential properties was carried out for the inhomogeneous Heston model, including conditional moments, central moments, variance, and skewness. Moreover, the closed-form formula obtained was numerically validated through MC simulations. Under this approach, the computational burden was significantly reduced.

This paper focuses mainly on the problem of computing the γth, γ>0, moment of a random variable Yn:=∑i=1nαiXi in which the αi’s are positive real numbers and the Xi’s are independent and distributed according to noncentral chi-square distributions. Finding an analytical approach for solving such a problem has remained a challenge due to the lack of understanding of the probability distribution of Yn, especially when not all αi’s are equal. We analytically solve this problem by showing that the γth moment of Yn can be expressed in terms of generalized hypergeometric functions. Additionally, we extend our result to computing the γth moment of Yn when Xi is a combination of statistically independent Zi2 and Gi in which the Zi’s are distributed according to normal or Maxwell–Boltzmann distributions and the Gi’s are distributed according to gamma, Erlang, or exponential distributions. Our paper has an immediate application in interest rate modeling, where we can explicitly provide the exact transition probability density function of the extended Cox–Ingersoll–Ross (ECIR) process with time-varying dimension as well as the corresponding γth conditional moment. Finally, we conduct Monte Carlo simulations to demonstrate the accuracy and efficiency of our explicit formulas through several numerical tests.

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