Esscher transform and the duality principle for multidimensional semimartingales
Probability
2009-11-05 v5 Computational Finance
Abstract
The duality principle in option pricing aims at simplifying valuation problems that depend on several variables by associating them to the corresponding dual option pricing problem. Here, we analyze the duality principle for options that depend on several assets. The asset price processes are driven by general semimartingales, and the dual measures are constructed via an Esscher transformation. As an application, we can relate swap and quanto options to standard call and put options. Explicit calculations for jump models are also provided.
Keywords
Cite
@article{arxiv.0809.0301,
title = {Esscher transform and the duality principle for multidimensional semimartingales},
author = {Ernst Eberlein and Antonis Papapantoleon and Albert N. Shiryaev},
journal= {arXiv preprint arXiv:0809.0301},
year = {2009}
}
Comments
Published in at http://dx.doi.org/10.1214/09-AAP600 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)