Martingale analysis for assets wih discontinuous returns

Martingale analysis for assets wih discontinuous returns

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Article ID: iaor20032611
Country: United States
Volume: 20
Issue: 1
Start Page Number: 243
End Page Number: 256
Publication Date: Feb 1995
Journal: Mathematics of Operations Research
Authors: ,
Abstract:

The equivalent martingale measure approach is applied to a financial market subject to jump-diffusion uncertainty. The uncertainty in the market is caused by a multidimensional Brownian motion process and a multidimensional point process of jumps admitting stochastic intensity. Under a boundedness condition on the relative risk premium on jumps, an equivalent risk-neutral probability measure is identified and is used to construct hedging portfolios for consumption processes and contingent claims. These are then applied to problems of utility maximization.

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