Pricing options on securities with discontinuous returns

Indrajit Bardhan and Xiulu Chao

Stochastic Processes and their Applications, 1993, vol. 48, issue 1, 123-137

Abstract: We consider a financial market where the asset prices are driven by a multidimensional Brownian motion processs and a multidimensional point process of random jumps admitting stochastic intensity. Using the equivalent martingale measure approach, we construct hedging portfolios for European and American contingent claims. We also present a valuation equation that must be satisfied by any derivative security and can be solved numerically to obtain option prices.

Keywords: point; processes; stochastic; intensity; equivalent; martingale; measure; European; and; American; options; valuation; equation (search for similar items in EconPapers)
Date: 1993
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Citations: View citations in EconPapers (7)

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