Exchange Options Under Jump-Diffusion Dynamics

Cheang, GH; Chiarella, C

Exchange Options Under Jump-Diffusion Dynamics

Cheang, GH Chiarella, C

Permalink

Publisher:: Routledge
Publication Type:: Journal Article
Citation:: Applied Mathematical Finance, 2011, 18 (3), pp. 245 - 276
Issue Date:: 2011-01

Closed Access

	Filename	Description	Size
	2009005878OK.pdf		447.56 kB	Adobe PDF	View/Open

Copyright Clearance Process

Recently Added
In Progress
Closed Access

This item is closed access and not available.

Full metadata record

Field	Value	Language
dc.contributor.author	Cheang, GH	en_US
dc.contributor.author	Chiarella, C	en_US
dc.date.issued	2011-01	en_US
dc.identifier.citation	Applied Mathematical Finance, 2011, 18 (3), pp. 245 - 276	en_US
dc.identifier.issn	1350-486X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/17248
dc.description.abstract	This article extends the exchange option model of Margrabe, where the distributions of both stock prices are log-normal with correlated Wiener components, to allow the underlying assets to be driven by jump-diffusion processes of the type originally introduced by Merton. We introduce the RadonNikody´m derivative process that induces the change of measure from the market measure to an equivalent martingale measure. The choice of parameters in the RadonNikody´m derivative allows us to price the option under different financial-economic scenarios. We also consider American style exchange options and provide a probabilistic interpretation of the early exercise premium.	en_US
dc.publisher	Routledge	en_US
dc.relation.ispartof	Applied Mathematical Finance	en_US
dc.relation.isbasedon	10.1080/1350486X.2013.798452	en_US
dc.subject.classification	Finance	en_US
dc.title	Exchange Options Under Jump-Diffusion Dynamics	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	18	en_US
utslib.for	010205 Financial Mathematics	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	0103 Numerical and Computational Mathematics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	3	en_US
pubs.volume	18	en_US

Abstract:

This article extends the exchange option model of Margrabe, where the distributions of both stock prices are log-normal with correlated Wiener components, to allow the underlying assets to be driven by jump-diffusion processes of the type originally introduced by Merton. We introduce the RadonNikody´m derivative process that induces the change of measure from the market measure to an equivalent martingale measure. The choice of parameters in the RadonNikody´m derivative allows us to price the option under different financial-economic scenarios. We also consider American style exchange options and provide a probabilistic interpretation of the early exercise premium.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/17248