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: | Chao X.L., Bardhan I. |
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.