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Jump Telegraph-Diffusion Option Pricing

Author

Listed:
  • Nikita Ratanov

    (Universidad del Rosario)

Abstract

The paper develops a class of Financial market models with jumps based on a Brownian motion, and inhomogeneous telegraph processes: random motions with alternating velocities. We assume that jumps occur when the velocities are switching. The distribution of such a process is described in detail. For this model we obtain the structure of the set of martingale measures. The model can be completed adding another asset based on the same sources of randomness. Explicit formulae for prices of standard European options in completed market are obtained.

Suggested Citation

  • Nikita Ratanov, 2008. "Jump Telegraph-Diffusion Option Pricing," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1070, Universitá degli Studi di Milano.
    • Handle: RePEc:bep:unimip:unimi-1070
    Note: oai:cdlib1:unimi-1070
    as

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    Cited by:

    1. Anatoliy A. Pogorui & Anatoliy Swishchuk & Ramón M. Rodríguez-Dagnino, 2021. "Transformations of Telegraph Processes and Their Financial Applications," Risks, MDPI, vol. 9(8), pages 1-21, August.

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