Classical solutions of the backward PIDE for Markov modulated marked point processes and applications to CAT bonds

DOI10.1016/J.INSMATHECO.2021.09.003MaRDI QIDQ2665872zbMATH OpenOpenAlexFDO

Authors Katia Colaneri, Rüdiger Frey

Publication date 19 November 2021

Published in Insurance Mathematics \& Economics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1903.07492

zbMATH Keywords

CAT bondsCauchy problemclassical solutionMarkov modulated marked point processpartial integro differential equations

Mathematics Subject Classification ID

Integro-partial differential equations (45K05) Jump processes on discrete state spaces (60J74) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: The objective of this paper is to give conditions ensuring that the backward partial integro differential equation associated with a multidimensional jump-diffusion with a pure jump component has a unique classical solution; that is the solution is continuous, twice differentiable in the diffusion component and differentiable in time. Our proof uses a probabilistic arguments and extends the results of Pham (1998) to processes with a pure jump component where the jump intensity is modulated by a diffusion process. This result is particularly useful in some applications to pricing and hedging of financial and actuarial instruments, and we provide an example to pricing of CAT bond.

Recommendations

• Pricing and hedging catastrophe equity put options under a Markov-modulated jump diffusion model
• About the pricing equations in finance
• Backward stochastic differential equations and integral-partial differential equations
• Backward stochastic differential equations associated to jump Markov processes and applications
• On solutions of backward stochastic differential equations with jumps and applications

Cites work

• A guided tour through quadratic hedging approaches
• A NONLINEAR FILTERING APPROACH TO VOLATILITY ESTIMATION WITH A VIEW TOWARDS HIGH FREQUENCY DATA
• Algorithmic and high-frequency trading
• Aspects of risk theory
• Catastrophe Risk Bonds
• Credit risk: Modelling, valuation and hedging
• Hedging of unit-linked life insurance contracts with unobservable mortality hazard rate via local risk-minimization
• scientific article; zbMATH DE number 3842849 (Why is no real title available?)
• scientific article; zbMATH DE number 3951715 (Why is no real title available?)
• scientific article; zbMATH DE number 4085365 (Why is no real title available?)
• scientific article; zbMATH DE number 3773426 (Why is no real title available?)
• Jump-diffusion risk-sensitive asset management. II: Jump-diffusion factor model
• Optimal liquidation under partial information with price impact
• Point processes and queues. Martingale dynamics
• Risk minimization with incomplete information in a model for high-frequency data
• Term-structure models. A graduate course
• Transition density for CIR process by Lie symmetries and application to ZCB pricing
• Value adjustments and dynamic hedging of reinsurance counterparty risk
• Valuing clustering in catastrophe derivatives

Cited in

(4)

• Optimal reinsurance and investment under common shock dependence between financial and actuarial markets
• Regular and exploratory resource extraction models considering sustainability
• Optimal investment and reinsurance under exponential forward preferences
• Indifference Pricing of Pure Endowments in a Regime-Switching Market Model

This page was built for publication: Classical solutions of the backward PIDE for Markov modulated marked point processes and applications to CAT bonds

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2665872)