EKSTRÖM, ERIK; TYSK, JOHAN - In: International Journal of Theoretical and Applied … 15 (2012) 06, pp. 1250041-1
We study Dupire's equation for local volatility models with bubbles, i.e. for models in which the discounted underlying … price process is a true martingale, and we show that the Dupire equation for call options contains extra terms compared to … the usual equation. However, the Dupire equation for put options takes the usual form. Moreover, uniqueness of solutions …