Jump telegraph processes and financial markets with memory Academic Article

abstract

  • The paper develops a new class of financial market models. These models are based on generalized telegraph processes with alternating velocities and jumps occurring at switching velocities. The model under consideration is arbitrage-free and complete if the directions of jumps in stock prices are in a certain correspondence with their velocity and with the behaviour of the interest rate. A risk-neutral measure and arbitrage-free formulae for a standard call option are constructed. This model has some features of models with memory, but it is more simple.

publication date

  • 2007/12/1

keywords

  • Arbitrage
  • Class
  • Correspondence
  • Data storage equipment
  • Financial Markets
  • Financial markets
  • Interest Rates
  • Jump
  • Market Model
  • Model
  • Standards
  • Stock Prices
  • Telegraph

International Standard Serial Number (ISSN)

  • 1048-9533