Telegraph processes with random jumps and complete market models

DOI10.1007/S11009-013-9388-XzbMATH Open1322.60170arXiv1311.5464OpenAlexW3103132818MaRDI QIDQ496959FDOQ496959

Authors: Nikita Ratanov 

Publication date: 23 September 2015

Published in: Methodology and Computing in Applied Probability (Search for Journal in Brave)

Abstract: We propose a new generalisation of jump-telegraph process with variable velocities and jumps. Amplitude of the jumps and velocity values are random, and they depend on the time spent by the process in the previous state of the underlying Markov process. This construction is applied to markets modelling. The distribution densities and the moments satisfy some integral equations of the Volterra type. We use them for characterisation of the equivalent risk-neutral measure and for the expression of historical volatility in various settings. The fundamental equation is derived by similar arguments. Historical volatilities are computed numerically.

Full work available at URL: https://arxiv.org/abs/1311.5464

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zbMATH Keywords

Volterra-type integral equationscompound Poisson processcomplete market modelshistorical volatilityinhomogeneous jump-telegraph process

Mathematics Subject Classification ID

Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Auctions, bargaining, bidding and selling, and other market models (91B26) Special processes (60K99) Volterra integral equations (45D05) Continuous-time Markov processes on discrete state spaces (60J27) Stochastic models in economics (91B70) Financial applications of other theories (91G80)

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Cited In (16)

• Asymptotic results for the absorption time of telegraph processes with elastic boundary at the origin
• Some results on the telegraph process confined by two non-standard boundaries
• On a jump-telegraph process driven by an alternating fractional Poisson process
• Generalized Telegraph Process with Random Jumps
• Option pricing and CVaR hedging in the regime-switching telegraph market model
• Double Telegraph Processes and Complete Market Models
• Option pricing under jump-diffusion processes with regime switching
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• Telegraph process with elastic boundary at the origin
• Probabilistic analysis of systems alternating for state-dependent dichotomous noise
• Hypo-exponential distributions and compound Poisson processes with alternating parameters
• Damped jump-telegraph processes
• Certain functionals of squared telegraph processes
• Some results on the telegraph process driven by gamma components
• Jump telegraph processes and financial markets with memory
• Telegraph Processes and Option Pricing

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