Stochastic Monotonicity and Duality ofkth Order with Application to Put-Call Symmetry of Powered Options

DOI10.1239/JAP/1429282608zbMath1344.60074arXiv1405.3894OpenAlexW2592775960MaRDI QIDQ5252238

Publication date: 29 May 2015

Published in: Journal of Applied Probability (Search for Journal in Brave)

Abstract: We introduce a notion of $k$th order stochastic monotonicity and duality that allows one to unify the notion used in insurance mathematics (sometimes refereed to as Siegmund's duality) for the study of ruin probability and the duality responsible for the so-called put - call symmetries in option pricing. Our general $k$th order duality can be financially interpreted as put - call symmetry for powered options. The main objective of the present paper is to develop an effective analytic approach to the analysis of duality leading to the full characterization of $k$th order duality of Markov processes in terms of their generators, which is new even for the well-studied case of put -call symmetries.

Full work available at URL: https://arxiv.org/abs/1405.3894

zbMATH Keywords

Markov processes generators stochastic duality dual processes stochastic monotonicity dual semigroup put-call symmetry powered options

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Continuous-time Markov processes on general state spaces (60J25) Diffusion processes (60J60) Financial applications of other theories (91G80) Transition functions, generators and resolvents (60J35)