Risk-minimizing option pricing under a Markov-modulated jump-diffusion model with stochastic volatility
In this paper, we deal with the pricing of European style options when the dynamics of the risky underlying asset are driven by a Markov-modulated jump diffusion with stochastic volatility. We investigate the Radon–Nikodym derivative for the minimal martingale measure and a partial differential equation approach for pricing European options. An optimal hedging strategy in terms of local risk minimization is obtained.
Volume (Year): 82 (2012)
Issue (Month): 10 ()
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