Pricing Contingent Claims under Jump Uncertainty

33 Pages Posted: 3 May 2016 Last revised: 29 Jan 2017

See all articles by Christoph Belak

Christoph Belak

Technische Universität Berlin (TU Berlin) - Fakultat II - Mathematik und Naturwissenschaften

Olaf Menkens

Dublin City University - School of Mathematical Sciences

Date Written: May 1, 2016

Abstract

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

Belak, Christoph and Menkens, Olaf, Pricing Contingent Claims under Jump Uncertainty (May 1, 2016). Available at SSRN: https://ssrn.com/abstract=2773231 or http://dx.doi.org/10.2139/ssrn.2773231

Christoph Belak (Contact Author)

Technische Universität Berlin (TU Berlin) - Fakultat II - Mathematik und Naturwissenschaften ( email )

Institut fur Mathematik, Sekr. MA 7-1
Strasse des 17. Juni 136
Berlin, 10623
Germany

Olaf Menkens

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

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