Jump Telegraph-Diffusion Option Pricing

Nikita Ratanov ()

No unimi-1070, UNIMI - Research Papers in Economics, Business, and Statistics from Universitá degli Studi di Milano

Abstract: The paper develops a class of Financial market models with jumps based on a Brownian motion, and inhomogeneous telegraph processes: random motions with alternating velocities. We assume that jumps occur when the velocities are switching. The distribution of such a process is described in detail. For this model we obtain the structure of the set of martingale measures. The model can be completed adding another asset based on the same sources of randomness. Explicit formulae for prices of standard European options in completed market are obtained.

Keywords: option pricing model; telegraph process; diffusion; martingale measure (search for similar items in EconPapers)
Date: 2008-04-03
Note: oai:cdlib1:unimi-1070
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://services.bepress.com/unimi/statistics/art33 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bep:unimip:unimi-1070

Access Statistics for this paper

More papers in UNIMI - Research Papers in Economics, Business, and Statistics from Universitá degli Studi di Milano Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().