Pricing Contingent Claims under Jump Uncertainty
33 Pages Posted: 3 May 2016 Last revised: 29 Jan 2017
Date Written: May 1, 2016
We study the problem of pricing contingent claims in the presence of uncertainty about the timing and the size of a jump in the price of the underlying. We characterize the price of the claim as the minimal solution of a constrained BSDE and derive a pricing PDE in the special case of a Markovian market model. In a Black-Scholes market, explicit solutions are obtained.
Keywords: Option Pricing, Superhedging, Jump Uncertainty, Worst-Case Scenarios, Constrained BSDEs, Viscosity Solutions
JEL Classification: G13, C73
Suggested Citation: Suggested Citation