Related papers: Convexity preserving jump-diffusion models for opt…
We study convexity and monotonicity properties of option prices in a model with jumps using the fact that these prices satisfy certain parabolic integro-differential equations. Conditions are provided under which preservation of convexity…
Affine jump-diffusions constitute a large class of continuous-time stochastic models that are particularly popular in finance and economics due to their analytical tractability. Methods for parameter estimation for such processes require…
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…
The random diffusion model is a continuum model for a conserved scalar density field driven by diffusive dynamics where the bare diffusion coefficient is density dependent. We generalize the model from one with a sharp wavenumber cutoff to…
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…
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…
The aim of this paper is to study the continuity correction for barrier options in jump-diusion models. For this purpose, we express the pay-off a barrier option in terms of the maximum of the underlying process. We then condition with…
Convection-diffusion equations provide the basis for describing heat and mass transfer phenomena as well as processes of continuum mechanics. To handle flows in porous media, the fundamental issue is to model correctly the convective…
In this paper we provide sufficient conditions for stochastic invariance of closed convex cones for stochastic partial differential equations (SPDEs) of jump-diffusion type, and clarify when these conditions are necessary. Our results apply…
In this paper consistency problems for multi-factor jump-diffusion models, where the jump parts follow multivariate point processes are examined. First the gap between jump-diffusion models and generalized Heath-Jarrow-Morton (HJM) models…
This paper develops stability and stabilization results for systems of fully coupled jump diffusions. Such systems frequently arise in numerous applications where each subsystem (component) is operated under the influence of other…
The paper demonstrates that a pure-diffusion 3/2 model is able to capture the observed upward-sloping implied volatility skew in VIX options. This observation contradicts a common perception in the literature that jumps are required for 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…
Sufficient conditions for a symmetric jump-diffusion process to be conservative and recurrent are given in terms of the volume of the state space and the jump kernel of the process. A number of examples are presented to illustrate the…
Convergence of stochastic processes with jumps to diffusion processes is investigated in the case when the limit process has discontinuous coefficients. An example is given in which the diffusion approximation of a queueing model yields a…
We study convexity and monotonicity properties for prices of bonds and bond options when the short rate is modeled by a diffusion process. We provide conditions under which convexity of the price in the short rate is guaranteed. Under these…
We consider a class of jump-diffusion processes, constrained to a polyhedral cone $G\subset\R^n$, where the constraint vector field is constant on each face of the boundary. The constraining mechanism corrects for ``attempts'' of the…
Path integral techniques for the pricing of financial options are mostly based on models that can be recast in terms of a Fokker-Planck differential equation and that, consequently, neglect jumps and only describe drift and diffusion. We…
We study a model for the movement of surfaces, namely the conserved, restricted solid-on-solid model. The surface configurations are restricted such that the difference between the heights at adjacent sites is no more than one. In addition…
A bubble is characterized by the presence of an underlying asset whose discounted price process is a strict local martingale under the pricing measure. In such markets, many standard results from option pricing theory do not hold, and in…