In this study, a numerical quadrature for the generalized inverse Gaussian distribution is derived from the Gauss--Hermite quadrature by exploiting its relationship with the normal distribution. The proposed quadrature is not Gaussian, but it exactly integrates the polynomials of both positive and negative orders. Using the quadrature, the generalized hyperbolic distribution is efficiently approximated as a finite normal variance-mean mixture. Therefore, the expectations under the distribution, such as cumulative distribution function and European option price, are accurately computed as weighted sums of those under normal distributions. The random variates from the generalized hyperbolic distribution are also sampled in a straightforward manner. The accuracy of the methods is illustrated with numerical examples.
In this study, a numerical quadrature for the generalized inverse Gaussian distribution is derived from the Gauss-Hermite quadrature by exploiting its relationship with the normal distribution. The proposed quadrature is not Gaussian, but it exactly integrates the polynomials of both positive and negative orders. Using the quadrature, the generalized hyperbolic distribution is efficiently approximated as a finite normal variance-mean mixture. Therefore, the expectations under the distribution, such as cumulative distribution function and European option price, are accurately computed as weighted sums of those under normal distributions. The generalized hyperbolic random variates are also sampled in a straightforward manner. The accuracy of the methods is illustrated with numerical examples.
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Gauss--Hermite
Gauss-Hermite
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random variates from the generalized hyperbolic distribution
generalized hyperbolic random variates