Change of measure in a Heston-Hawkes stochastic volatility model

David R. Ba\~nos, Salvador Ortiz-Latorre and Oriol Zamora Font

Papers from arXiv.org

Abstract: We consider the stochastic volatility model obtained by adding a compound Hawkes process to the volatility of the well-known Heston model. A Hawkes process is a self-exciting counting process with many applications in mathematical finance, insurance, epidemiology, seismology and other fields. We prove a general result on the existence of a family of equivalent (local) martingale measures. We apply this result to a particular example where the sizes of the jumps are exponentially distributed.

Date: 2022-10
New Economics Papers: this item is included in nep-rmg
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