Option pricing driven by a telegraph process with random jumps Academic Article

abstract

  • In this paper we propose a class of financial market models which are based on telegraph processes with alternating tendencies and jumps. It is assumed that the jumps have random sizes and that they occur when the tendencies are switching. These models are typically incomplete, but the set of equivalent martingale measures can be described in detail. We provide additional suggestions which permit arbitrage-free option prices as well as hedging strategies to be obtained. © Applied Probability Trust 2012.

publication date

  • 2012/9/1

keywords

  • Arbitrage
  • Class
  • Equivalent Martingale Measure
  • Equivalent martingale measure
  • Financial Markets
  • Financial markets
  • Hedging
  • Hedging strategies
  • Jump
  • Market Model
  • Market model
  • Model
  • Option Pricing
  • Option hedging
  • Option prices
  • Option pricing
  • Price strategy
  • Strategy

International Standard Serial Number (ISSN)

  • 0021-9002

number of pages

  • 12

start page

  • 838

end page

  • 849