A jump telegraph model for option pricing

In this paper we introduce a financial market model based on continuous time random motions with alternating constant velocities and jumps occurring when the velocities are switching. This model is free of arbitrage if jump directions are in a certain correspondence with the velocities of the underlying random motion. Replicating strategies for European options are constructed in detail. Exact formulae for option prices are derived.

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Year of publication:	2007
Authors:	Ratanov, Nikita
Published in:	Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 7.2007, 5, p. 575-583
Publisher:	Taylor & Francis Journals
Subject:	Financial market \| Telegraph process \| Hedging

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005462645