Polynomial Jump-Diffusion Models
Mathematical Finance
2019-07-23 v3 Pricing of Securities
Abstract
We develop a comprehensive mathematical framework for polynomial jump-diffusions in a semimartingale context, which nest affine jump-diffusions and have broad applications in finance. We show that the polynomial property is preserved under polynomial transformations and L\'evy time change. We present a generic method for option pricing based on moment expansions. As an application, we introduce a large class of novel financial asset pricing models with excess log returns that are conditional L\'evy based on polynomial jump-diffusions.
Keywords
Cite
@article{arxiv.1711.08043,
title = {Polynomial Jump-Diffusion Models},
author = {Damir Filipović and Martin Larsson},
journal= {arXiv preprint arXiv:1711.08043},
year = {2019}
}
Comments
Forthcoming in Stochastic Systems