A stochastic volatility model with jumps

Details A stochastic volatility model with jumps A stochastic volatility model with jumps

2006-03-22

arxiv.org/abs/math/0603527v2

Mathematics

Probability

Scientific paper

We consider a stochastic volatility model with jumps where the underlying asset price is driven by the process sum of a 2-dimensional Brownian motion and a 2-dimensional compensated Poisson process. The market is incomplete, resulting in infinitely many equivalent martingale measures. We find the set equivalent martingale measures, and we hedge by minimizing the variance using Malliavin calculus.

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