We present an accurate and easy-to-compute approximation of zero-coupon bonds and Arrow–Debreu (AD) prices for the Black–Karasinski (BK) model of interest rates or default intensities. Through this procedure, dubbed exponent expansion, AD prices are obtained as a power series in time to...

A computational technique borrowed from the physical sciences is introduced to obtain accurate closed-form approximations for the transition probability of arbitrary diffusion processes. Within the path integral framework the same technique allows one to obtain remarkably good approximations of...