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English

Linear-Quadratic Jump-Diffusion Modeling

Collection
  • Cahiers de recherche; 2006.02
Publication date2006
Abstract

We aim at accommodating the existing affine jump-diffusion and quadratic models under the same roof, namely the linear-quadratic jump-diffusion (LQJD) class. We give a complete characterization of the dynamics of this class by stating explicitly the structural constraints, as well as the admissibility conditions. This allows us to carry out a specification analysis for the 3-factor LQJD models. We compute the standard transform of the state vector relevant to asset pricing up to a system of ordinary differential equations. We show that the LQJD class can be embedded into the affine class through use of an augmented state vector. This establishes a one-to-one equivalence relationship between both classes in terms of transform analysis.

Keywords
  • Linear-quadratic models
  • Affine models
  • Jump-diffusions
  • Generalized Fourier transform
  • Option pricing
Citation (ISO format)
CHENG, P., SCAILLET, Olivier. Linear-Quadratic Jump-Diffusion Modeling. 2006
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Report
accessLevelPublic
Identifiers
  • PID : unige:5748
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Technical informations

Creation04/15/2010 12:19:43 PM
First validation04/15/2010 12:19:43 PM
Update time03/14/2023 3:26:25 PM
Status update03/14/2023 3:26:25 PM
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