Jump Telegraph-Diffusion Option Pricing

Abstract

The paper develops a class of financial market models with jumps based on aBrownian motion, and inhomogeneous telegraph processes: random motions withalternating velocities. We assume that jumps occur when the velocities are switch-ing. The distribution of such a process is described in detail. For this model weobtain the structure of the set of martingale measures. The model can be completedadding another asset based on the same sources of randomness. Explicit formulaefor prices of standard European options in completed market are obtained. (1) (PDF) Jump Telegraph-Diffusion Option Pricing. Available from: https://www.researchgate.net/publication/4729084_Jump_Telegraph-Diffusion_Option_Pricing [accessed Sep 01 2020].