On a Heath-Jarrow-Morton approach for stock options

Jan Kallsen and Paul Kr\"uhner

Papers from arXiv.org

Abstract: This paper aims at transferring the philosophy behind Heath-Jarrow-Morton to the modelling of call options with all strikes and maturities. Contrary to the approach by Carmona and Nadtochiy (2009) and related to the recent contribution Carmona and Nadtochiy (2012) by the same authors, the key parametrisation of our approach involves time-inhomogeneous L\'evy processes instead of local volatility models. We provide necessary and sufficient conditions for absence of arbitrage. Moreover we discuss the construction of arbitrage-free models. Specifically, we prove their existence and uniqueness given basic building blocks.

Date: 2013-05, Revised 2013-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://arxiv.org/pdf/1305.5621 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1305.5621

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().