Convexity preserving jump-diffusion models for option pricing
We investigate which jump-diffusion models are convexity preserving. The study of convexity preserving models is motivated by monotonicity results for such models in the volatility and in the jump parameters. We give a necessary condition for convexity to be preserved in several-dimensional jump-diffusion models. This necessary condition is then used to show that, within a large class of possible models, the only convexity preserving models are the ones with linear coefficients.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bergman, Yaacov Z & Grundy, Bruce D & Wiener, Zvi, 1996. " General Properties of Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1573-1610, December.
- N. Bellamy & M. Jeanblanc, 2000. "Incompleteness of markets driven by a mixed diffusion," Finance and Stochastics, Springer, vol. 4(2), pages 209-222.
- Masaaki Kijima, 2002. "Monotonicity And Convexity Of Option Prices Revisited," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 411-425.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:math/0601526. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.