Convexity preserving jump-diffusion models for option pricing

Details Convexity preserving jump-diffusion models for option pricing Convexity preserving jump-diffusion models for option pricing

2006-01-22

arxiv.org/abs/math/0601526v1

J. Math. Anal. Appl. 330 (2007), 715-728.

Mathematics

Analysis of PDEs

14 pages

Scientific paper

We investigate which jump-diffusion models are convexity preserving. The study of convexity preserving models is motivated by monotonicity results for such models in the volatility and in the jump parameters. We give a necessary condition for convexity to be preserved in several-dimensional jump-diffusion models. This necessary condition is then used to show that, within a large class of possible models, the only convexity preserving models are the ones with linear coefficients.

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