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Polynomial Jump-Diffusion Models

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  • Damir Filipovi'c
  • Martin Larsson

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.

Suggested Citation

  • Damir Filipovi'c & Martin Larsson, 2017. "Polynomial Jump-Diffusion Models," Papers 1711.08043, arXiv.org, revised Jul 2019.
    • Handle: RePEc:arx:papers:1711.08043
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    References listed on IDEAS

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    7. Damien Ackerer & Damir Filipovic, 2017. "Option Pricing with Orthogonal Polynomial Expansions," Papers 1711.09193, arXiv.org, revised May 2019.
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    Cited by:

    1. Boonstra, Boris C. & Oosterlee, Cornelis W., 2021. "Valuation of electricity storage contracts using the COS method," Applied Mathematics and Computation, Elsevier, vol. 410(C).
    2. Damir Filipovi'c & Sander Willems, 2018. "A Term Structure Model for Dividends and Interest Rates," Papers 1803.02249, arXiv.org, revised May 2020.

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