Coupling and Option Price Comparisons in a Jump-Diffusion model
In this paper we examine the dependence of option prices in a general jump-diffusion model on the choice of martingale pricing measure. Since the model is incomplete there are many equivalent martingale measures. Each of these measures corresponds to a choice for the market price of diffusion risk and the market price of jump risk. Our main result is to show that for conves payoffs the option price is increasing in the the jump-risk parameter. We apply this result to deduce general inequalities comparing the prices of contingent claims under various martingale measures which have been propsed in the literature as candidate pricing measures. Our proods are based on couplings of stochastic processes. If there is only one possible jump size then we are able to utilize a second coupling to extend our results to include stochastic jump intensities.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.finance.ox.ac.uk|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:sbs:wpsefe:2002mf01. 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: (Maxine Collett)
If references are entirely missing, you can add them using this form.