A jump telegraph model for option pricing

Nikita Ratanov ()

Quantitative Finance, 2007, vol. 7, issue 5, 575-583

Abstract: In this paper we introduce a financial market model based on continuous time random motions with alternating constant velocities and jumps occurring when the velocities are switching. This model is free of arbitrage if jump directions are in a certain correspondence with the velocities of the underlying random motion. Replicating strategies for European options are constructed in detail. Exact formulae for option prices are derived.

Keywords: Financial market; Telegraph process; Hedging (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (17)

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Working Paper: A Jump Telegraph Model for Option Pricing (2004)
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DOI: 10.1080/14697680600991226

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