Pricing options on securities with discontinuous returns

We consider a financial market where the asset prices are driven by a multidimensional Brownian motion processs and a multidimensional point process of random jumps admitting stochastic intensity. Using the equivalent martingale measure approach, we construct hedging portfolios for European and American contingent claims. We also present a valuation equation that must be satisfied by any derivative security and can be solved numerically to obtain option prices.

MoreLess

Year of publication:	1993
Authors:	Bardhan, Indrajit ; Chao, Xiulu
Published in:	Stochastic Processes and their Applications. - Elsevier, ISSN 0304-4149. - Vol. 48.1993, 1, p. 123-137
Publisher:	Elsevier
Keywords:	point processes stochastic intensity equivalent martingale measure European and American options valuation equation

More details

Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008875197