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Please refer to this blog post for more information. We consider a financial market where the asset prices are driven by a multidimensional Brownian motion processs and a multidimensional point process of random jumps admitting stochastic intensity.

Using the equivalent martingale measure approach, we construct hedging portfolios for European and American contingent claims. We also present a valuation equation that must be satisfied by any derivative security and can be solved numerically to obtain option prices.

This work was done when the author was at the Department of Industrial Engineering and Operations Research, Columbia University, New York, U.

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Option pricing when underlying stock returns are discontinuous

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EconPapers: Option pricing when underlying stock returns are discontinuous

Stochastic Processes and their Applications Volume 48, Issue option prices on stocks returns are discontinuousOctoberOption prices on stocks returns are discontinuous Pricing options on securities with discontinuous returns. Author links open the author workspace.

Numbers and letters correspond to the affiliation list. Click to expose these in author workspace Division of Industrial and Management Engineering, New Jersey Institute of Technology, Newark, NJ, USA.

Under an Elsevier user license. Abstract We consider a financial market where the asset prices are driven by a multidimensional Brownian motion processs and a multidimensional point process of random jumps admitting stochastic intensity. European and American options.

Option pricing when underlying stock returns are discontinuous

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