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Free accessOther version: http://doi.wiley.com/10.1111/j.1467-9965.2007.00316.x
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unige:79886 
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Linear-quadratic jump-diffusion modeling |
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| Authors | ||
| Published in | Mathematical Finance. 2007, vol. 17, no. 4, p. 575-598 | |
| 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 character- ization 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 trans- form — Option pricing | |
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Article (Author postprint) (323 Kb) - Free access Other version: http://doi.wiley.com/10.1111/j.1467-9965.2007.00316.x |
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| Structures | ||
| Research group | Geneva Finance Research Institute (GFRI) | |
| Citation (ISO format) | CHENG, Peng, SCAILLET, Olivier. Linear-quadratic jump-diffusion modeling. In: Mathematical Finance, 2007, vol. 17, n° 4, p. 575-598. https://archive-ouverte.unige.ch/unige:79886 |
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