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

DOI10.1111/J.1467-9965.1995.TB00070.XMaRDI QIDQ3126239zbMATH OpenOpenAlexFDO

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

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)

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Cites work

• scientific article; zbMATH DE number 4081235 (Why is no real title available?)
• scientific article; zbMATH DE number 45955 (Why is no real title available?)
• A stochastic calculus model of continuous trading: Complete markets
• APPROXIMATE COMPLETENESS WITH MULTIPLE MARTINGALE MEASURES
• Arbitrage and Diversification in a General Equilibrium Asset Economy
• Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation
• Contingent claims valuation when the security price is a combination of an Itō process and a random point process
• Martingales and stochastic integrals in the theory of continuous trading
• Option pricing when underlying stock returns are discontinuous
• Point processes and queues. Martingale dynamics

Cited in

(22)

• Estimation of the Characteristics of the Jumps of a General Poisson-Diffusion Model
• A simulation environment for discontinuous portfolio value processes
• Kernel-correlated Lévy field driven forward rate and application to derivative pricing
• Existence of Lévy term structure models
• Approximate hedging of options under jump-diffusion processes
• 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
• Convergence of numerical schemes for viscosity solutions to integro-differential degenerate parabolic problems arising in financial theory
• The European options hedge perfectly in a Poisson-Gaussian stock market model
• 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
• Discrete-time bond and option pricing for jump-diffusion processes
• Term structure modelling of defaultable bonds
• On martingale measures when asset returns have unpredictable jumps
• Implied default probability and credit derivatives
• Uniqueness of the Solution to a Difference-Partial Differential Equation for Finance
• Pricing of multiple defaultable bond

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