A SHOT NOISE MODEL FOR FINANCIAL ASSETS

Timo Altmann, Thorsten Schmidt () and Winfried Stute ()
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Timo Altmann: Mathematical Insitute, University of Giessen, Arndtstr. 2, D-35392 Giessen, Germany
Thorsten Schmidt: Mathematical Insitute, University of Leipzig, D-04081 Leipzig, Germany
Winfried Stute: Mathematical Insitute, University of Giessen, Arndtstr. 2, D-35392 Giessen, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2008, vol. 11, issue 01, 87-106

Abstract: In this article we propose and study a model for stock prices which allows for shot-noise effects. This means that abrupt changes caused by jumps may fade away as time goes by. This model is incomplete. We derive the minimal martingale measure in discrete and continuous time and discuss the associated hedging strategy. Finally, a simulation study is included to show that our model is able to produce smile effects.

Keywords: Shot-noise component; jump diffusion; minimal martingale measure (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (10)

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DOI: 10.1142/S0219024908004737

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