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https://hdl.handle.net/2440/35004
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Type: | Journal article |
Title: | Option pricing for pure jump processes with Markov switching compensators |
Author: | Elliott, R. |
Citation: | Finance and Stochastics, 2006; 10(2):250-275 |
Publisher: | Springer-Heidelberg |
Issue Date: | 2006 |
ISSN: | 0949-2984 1432-1122 |
Statement of Responsibility: | Robert J. Elliott and Carlton-James U. Osakwe |
Abstract: | This paper proposes a model for asset prices which is the exponential of a pure jump process with an N-state Markov switching compensator. We argue that such a process has a good chance of capturing all the empirical stylized regularities of stock price dynamics and we provide a closed form representation of its characteristic function. We also provide a parsimonious representation of the (not necessarily unique) risk neutral density and showhowto price and hedge a large class of options on assets whose prices follow this process. |
Keywords: | Jump process Markov switching Compensator Characteristic Function European options Hedging |
DOI: | 10.1007/s00780-006-0004-6 |
Published version: | http://www.springerlink.com/content/wh3546g617754qn0/ |
Appears in Collections: | Applied Mathematics publications Aurora harvest 6 |
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