Two-Sided Estimates for Distribution Densities in Models with Jumps

DOI10.1007/978-3-642-22368-6_7MaRDI QIDQ2914792zbMATH OpenOpenAlexFDO

Authors Archil Gulisashvili, Josep Vives

Publication date 21 September 2012

Published in Stochastic Differential Equations and Processes (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1005.1917

zbMATH Keywords

distribution densitiesstochastic stock price models

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Distribution theory (60E99)

Abstract: We consider uncorrelated Stein-Stein, Heston, and Hull-White models and their perturbations by compound Poisson processes with jump amplitudes distributed according to a double exponential law. Similar perturbations of the Black-Scholes model were studied by S. Kou. For perturbed stochastic volatility models, we obtain two-sided estimates for the stock price distribution density and compare the tail behavior of this density before and after perturbation. It is shown that if the value of the parameter, characterizing the right tail of the double exponential law, is small, then the stock price density in the perturbed model decays slower than the density in the original model. On the other hand, if the value of this parameter is large, then there are no significant changes in the behavior of the stock price distribution density.

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Cited in

(6)

• Approximate option pricing under a two-factor Heston-Kou stochastic volatility model
• Modelling of shares density distribution with discrete observations
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• Ehrenfest model with large jumps in finance
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