Forward equations for option prices in semimartingale models

Amel Bentata () and Rama Cont ()

Finance and Stochastics, 2015, vol. 19, issue 3, 617-651

Abstract: We derive a forward partial integro-differential equation for prices of call options in a model where the dynamics of the underlying asset under the pricing measure is described by a—possibly discontinuous—semimartingale. This result generalizes Dupire’s forward equation to a large class of non-Markovian models with jumps. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Forward equation; Dupire equations; Jump process; Semimartingale; Tanaka–Meyer formula; Markovian projection; Call option; Option pricing; 60H30; 91G20; 35S10; 91G80; C60; G13 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s00780-015-0265-z

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