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Forward equations for option prices in semimartingale models

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  • Rama Cont
  • Amel Bentata

Abstract

We derive a forward partial integro-differential equation for prices of call options in a model where the dynamics of the underlying asset under the pricing measure is described by a -possibly discontinuous- semimartingale. A uniqueness theorem is given for the solutions of this equation. This result generalizes Dupire's forward equation to a large class of non-Markovian models with jumps.

Suggested Citation

  • Rama Cont & Amel Bentata, 2010. "Forward equations for option prices in semimartingale models," Papers 1001.1380, arXiv.org, revised Jan 2012.
  • Handle: RePEc:arx:papers:1001.1380
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    File URL: http://arxiv.org/pdf/1001.1380
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    Cited by:

    1. Andrey Itkin, 2017. "Modelling stochastic skew of FX options using SLV models with stochastic spot/vol correlation and correlated jumps," Applied Mathematical Finance, Taylor & Francis Journals, vol. 24(6), pages 485-519, November.

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