Related papers: Jump-diffusion modeling in emission markets
The paper proposes a class of financial market models which are based on inhomogeneous telegraph processes and jump diffusions with alternating volatilities. It is assumed that the jumps occur when the tendencies and volatilities are…
Standard jump-diffusion models assume independence between jumps and diffusion components. We develop a multi-type jump-diffusion model where jump occurrence and magnitude depend on contemporaneous diffusion movements. Unlike previous…
This paper studies the pricing and hedging of derivatives in frictionless and competitive, but incomplete jump-diffusion markets. A unique equivalent martingale measure (EMM) is obtained using filtration reduction to a fictitious complete…
We model continuous-time information flows generated by a number of information sources that switch on and off at random times. By modulating a multi-dimensional L\'evy random bridge over a random point field, our framework relates the…
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…
In this paper we consider a jump-diffusion dynamic whose parameters are driven by a continuous time and stationary Markov Chain on a finite state space as a model for the underlying of European contingent claims. For this class of processes…
Most energy and commodity markets exhibit mean-reversion and occasional distinctive price spikes, which results in demand for derivative products which protect the holder against high prices. To this end, in this paper we present exact and…
We study a financial market where the risky asset is modelled by a geometric It\^o-L\'{e}vy process, with a singular drift term. This can for example model a situation where the asset price is partially controlled by a company which…
It is generally accepted that the asset price processes contain jumps. In fact, pure jump models have been widely used to model asset prices and/or stochastic volatilities. The question is: is there any statistical evidence from the…
This paper presents the solution to a European option pricing problem by considering a regime-switching jump diffusion model of the underlying financial asset price dynamics. The regimes are assumed to be the results of an observed pure…
We price European and American exchange options where the underlying asset prices are modelled using a Merton (1976) jump-diffusion with a common Heston (1993) stochastic volatility process. Pricing is performed under an equivalent…
The information dynamics in finance and insurance applications is usually modeled by a filtration. This paper looks at situations where information restrictions apply such that the information dynamics may become non-monotone. A fundamental…
We present a detailed analysis and implementation of a splitting strategy to identify simultaneously the local-volatility surface and the jump-size distribution from quoted European prices. The underlying model consists of a jump-diffusion…
We consider the pricing of derivatives written on accumulated marks, such as weather derivatives or aggregate loss claims, using a self-exciting marked point process. The jump intensity mean-reverts between events and increases at jump…
Asymptotic theory for approximate martingale estimating functions is generalised to diffusions with finite-activity jumps, when the sampling frequency and terminal sampling time go to infinity. Rate optimality and efficiency are of…
In this paper, we are presenting a method for estimation of market parameters modeled by jump diffusion process. The method proposed is based on Gibbs sampler, while the market parameters are the drift, the volatility, the jump intensity…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
We derived similar to Bo et al. (2010) results but in the case when the dynamics of the FX rate is driven by a general Merton jump-diffusion process. The main results of our paper are as follows: 1) formulas for the Esscher transform…
Measuring model risk is required by regulators on financial and insurance markets. We separate model risk into parameter estimation risk and model specification risk, and we propose expected shortfall type model risk measures applied to…
We consider a stochastic volatility model with jumps where the underlying asset price is driven by the process sum of a 2-dimensional Brownian motion and a 2-dimensional compensated Poisson process. The market is incomplete, resulting in…