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The European options hedge perfectly in a Poisson-Gaussian stock market model

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  • C. Mancini
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    Abstract

    It is shown that n + 1 European call options written on a stock S with different strike prices (or the stock and n calls) are non-redundant assets in a model for the stock driven by a Brownian motion and n independent Poisson processes. That extends the result obtained for n = 1 by Pham and implies that the proposed model can price and perfectly hedge any integrable derivative on S.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/13504860210148241
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

    Volume (Year): 9 (2002)
    Issue (Month): 2 ()
    Pages: 87-102

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    Handle: RePEc:taf:apmtfi:v:9:y:2002:i:2:p:87-102

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    Related research

    Keywords: Jump-DIFFUSION Stock Model; M-VARIATE Poisson Process; Call Options; Volatility Coefficients; T-BASIS; Total Convergence; Completeness;

    References

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    1. Naik, Vasanttilak & Lee, Moon, 1990. "General Equilibrium Pricing of Options on the Market Portfolio with Discontinuous Returns," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 493-521.
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