Polynomial Jump-Diffusion Models

Damir Filipović and Martin Larsson
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Damir Filipović: Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute
Martin Larsson: ETH Zurich

No 17-60, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop a comprehensive mathematical framework for polynomial jump-diffusions, which nest affine jump-diffusions and have broad applications in finance. We show that the polynomial property is preserved under exponentiation and subordination. We present a generic method for option pricing based on moment expansions. As an application, we introduce a large class of novel financial asset pricing models that are based on polynomial jump-diffusions.

Keywords: polynomial jump-diffusions; affine jump-diffusions; exponentiation; subordination; asset pricing models; stochastic volatility (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017-11
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1760

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