A jump telegraph model for option pricing

Nikita Ratanov

doi:10.1080/14697680600991226

A jump telegraph model for option pricing

Nikita Ratanov

urosario

Research output: Contribution to journal › Research Article › peer-review

50 Scopus citations

Abstract

In this paper we introduce a financial market model based on continuous time random motions with alternating constant velocities and jumps occurring when the velocities are switching. This model is free of arbitrage if jump directions are in a certain correspondence with the velocities of the underlying random motion. Replicating strategies for European options are constructed in detail. Exact formulae for option prices are derived.

Original language	English (US)
Pages (from-to)	575-583
Number of pages	9
Journal	Quantitative Finance
Volume	7
Issue number	5
DOIs	https://doi.org/10.1080/14697680600991226
State	Published - Oct 2007

All Science Journal Classification (ASJC) codes

Finance
Economics, Econometrics and Finance(all)

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10.1080/14697680600991226

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abstract = "In this paper we introduce a financial market model based on continuous time random motions with alternating constant velocities and jumps occurring when the velocities are switching. This model is free of arbitrage if jump directions are in a certain correspondence with the velocities of the underlying random motion. Replicating strategies for European options are constructed in detail. Exact formulae for option prices are derived.",

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AB - In this paper we introduce a financial market model based on continuous time random motions with alternating constant velocities and jumps occurring when the velocities are switching. This model is free of arbitrage if jump directions are in a certain correspondence with the velocities of the underlying random motion. Replicating strategies for European options are constructed in detail. Exact formulae for option prices are derived.

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A jump telegraph model for option pricing

Abstract

All Science Journal Classification (ASJC) codes

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