Filtration Reduction and Completeness in Jump-Diffusion Models
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arXiv
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| Autores principales: | , |
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| Formato: | Preprint |
| Publicado: |
2023
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| _version_ | 1866909890257092608 |
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| author | Grigorian, Karen Jarrow, Robert |
| author_facet | Grigorian, Karen Jarrow, Robert |
| contents | This paper studies the pricing and hedging of derivatives in frictionless and competitive, but incomplete jump-diffusion markets. A unique equivalent martingale measure (EMM) is obtained using filtration reduction to a fictitious complete market. This unique EMM in the fictitious market is uplifted to the original economy using the notion of consistency. For pedagogical purposes, we begin with simple setups and progressively extend to models of increasing generality. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2304_06202 |
| institution | arXiv |
| publishDate | 2023 |
| record_format | arxiv |
| spellingShingle | Filtration Reduction and Completeness in Jump-Diffusion Models Grigorian, Karen Jarrow, Robert Mathematical Finance Probability Pricing of Securities 91G15, 91G20 This paper studies the pricing and hedging of derivatives in frictionless and competitive, but incomplete jump-diffusion markets. A unique equivalent martingale measure (EMM) is obtained using filtration reduction to a fictitious complete market. This unique EMM in the fictitious market is uplifted to the original economy using the notion of consistency. For pedagogical purposes, we begin with simple setups and progressively extend to models of increasing generality. |
| title | Filtration Reduction and Completeness in Jump-Diffusion Models |
| topic | Mathematical Finance Probability Pricing of Securities 91G15, 91G20 |
| url | https://arxiv.org/abs/2304.06202 |