On jump-diffusion processes with regime switching: martingale approach

MaRDI QIDQ3465401zbMATH OpenFDO

Authors Antonio Di Crescenzo, Nikita Ratanov

Publication date 21 January 2016

Full work available at URL https://arxiv.org/abs/1508.04533, http://alea.impa.br/articles/v12/12-23.pdf

zbMATH Keywords

financial modelingjump-diffusion processjump-telegraph processmartingalesrelative entropy

Mathematics Subject Classification ID

Martingales with continuous parameter (60G44) Diffusion processes (60J60) Financial applications of other theories (91G80)

Abstract: We study jump-diffusion processes with parameters switching at random times. Being motivated by possible applications, we characterise equivalent martingale measures for these processes by means of the relative entropy. The minimal entropy approach is also developed. It is shown that in contrast to the case of L'evy processes, for this model an Esscher transformation does not produce the minimal relative entropy.

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• Analysis of a class of price process models with jump
• Some results on the telegraph process driven by gamma components
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• Risk-neutral measures and pricing for a pure jump price process

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