OPTION PRICING USING THE TERM STRUCTURE OF INTEREST RATES TO HEDGE SYSTEMATIC DISCONTINUITIES IN ASSET RETURNS

DOI10.1111/J.1467-9965.1995.TB00070.XzbMATH Open0866.90018OpenAlexW2161906325MaRDI QIDQ3126239FDOQ3126239

Authors: Dilip B. Madan, Robert A. Jarrow 

Publication date: 23 March 1997

Published in: Mathematical Finance (Search for Journal in Brave)

Full work available at URL: https://doi.org/10.1111/j.1467-9965.1995.tb00070.x

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zbMATH Keywords

option pricingarbitrage pricingBrownian motionsmarket completenessdesign of dynamic portfolio management strategiesterm-structure-related securitiesunique martingale measures

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Signal detection and filtering (aspects of stochastic processes) (60G35) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Cites Work

• Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation
• Option pricing when underlying stock returns are discontinuous
• Title not available (Why is that?)
• Point processes and queues. Martingale dynamics
• Martingales and stochastic integrals in the theory of continuous trading
• A stochastic calculus model of continuous trading: Complete markets
• Title not available (Why is that?)
• Contingent claims valuation when the security price is a combination of an Itō process and a random point process
• Arbitrage and Diversification in a General Equilibrium Asset Economy
• APPROXIMATE COMPLETENESS WITH MULTIPLE MARTINGALE MEASURES

Cited In (22)

• A simulation environment for discontinuous portfolio value processes
• Approximate hedging of options under jump-diffusion processes
• Kernel-correlated Lévy field driven forward rate and application to derivative pricing
• Existence of Lévy term structure models
• Term structure modeling and asymptotic long rate
• A multi-factor jump-diffusion model for commodities†
• Rational term structure models with geometric Lévy martingales
• The Euler scheme for Lévy driven stochastic differential equations
• The European options hedge perfectly in a Poisson-Gaussian stock market model
• Convergence of numerical schemes for viscosity solutions to integro-differential degenerate parabolic problems arising in financial theory
• Dynamic asset pricing theory with uncertain time-horizon
• Jump-diffusion models of German stock returns
• Estimation of the Characteristics of the Jumps of a General Poisson-Diffusion Model
• SYMMETRIES IN JUMP-DIFFUSION MODELS WITH APPLICATIONS IN OPTION PRICING AND CREDIT RISK
• A direct discrete-time approach to Poisson-Gaussian bond option pricing in the Heath-Jarrow-Morton model
• On martingale measures when asset returns have unpredictable jumps
• Discrete-time bond and option pricing for jump-diffusion processes
• Term structure modelling of defaultable bonds
• Implied default probability and credit derivatives
• Estimation of the Characteristics of the Jumps of a General Poisson-Diffusion Model
• Uniqueness of the Solution to a Difference-Partial Differential Equation for Finance
• Pricing of multiple defaultable bond

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