Convexity preserving jump-diffusion models for option pricing |
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Authors: | Erik Ekströ m,Johan Tysk |
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Affiliation: | a School of Mathematics, University of Manchester, Sackville Street, Manchester M60 1QD, UK b Department of Mathematics, Uppsala University, Box 480, SE-75106 Uppsala, Sweden |
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Abstract: | 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. |
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Keywords: | Convexity Jump-diffusions Integro-differential equations Options Option price orderings |
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