Parameter averaging applied to displaced diffusion.

e apply the result of the previous
section (
Parameter averaging
) to
the equations (
displaced diffusion with
term
structure
):
We approximate
with the
given
by
and we are seeking for the best parameter
.
Using the notation of the previous
section
The
is introduced because of the
normalization
According to the result (
parameter
averaging
) the best parameter
comes from the
relationships
According to the relationships
and
the
is given by the SDE