Convexity preserving jump-diffusion models for option pricing

Erik Ekstr\"om and Johan Tysk

Papers from arXiv.org

Abstract: We investigate which jump-diffusion models are convexity preserving. The study of convexity preserving models is motivated by monotonicity results for such models in the volatility and in the jump parameters. We give a necessary condition for convexity to be preserved in several-dimensional jump-diffusion models. This necessary condition is then used to show that, within a large class of possible models, the only convexity preserving models are the ones with linear coefficients.

Date: 2006-01
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Citations: View citations in EconPapers (1)

Published in J. Math. Anal. Appl. 330 (2007), 715-728.

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