Abstract
This chapter considers jump-diffusion processes to allow for price fluctuations to have two components, one consisting of the usual increments of a Wiener process, the second allows for “large” jumps from time-to-time. We introduce Poisson jump process with either absolute or proportional jump sizes through the stochastic integrals and provide solutions when both the stock price and Poisson jump size are log-normal. We also extend Ito’s lemma for the jump-diffusion processes.
| Original language | English |
|---|---|
| Title of host publication | Dynamic Modeling and Econometrics in Economics and Finance |
| Publisher | Springer Science and Business Media Deutschland GmbH |
| Pages | 251-271 |
| Number of pages | 21 |
| DOIs | |
| Publication status | Published - 2015 |
| Externally published | Yes |
Publication series
| Name | Dynamic Modeling and Econometrics in Economics and Finance |
|---|---|
| Volume | 21 |
| ISSN (Print) | 1566-0419 |
| ISSN (Electronic) | 2363-8370 |
Keywords
- Asset Price
- Jump Process
- Jump Size
- Stochastic Differential Equation
- Wiener Process
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Chiarella, C., He, X. Z., & Nikitopoulos, C. S. (2015). Jump-Diffusion Processes. In Dynamic Modeling and Econometrics in Economics and Finance (pp. 251-271). (Dynamic Modeling and Econometrics in Economics and Finance; Vol. 21). Springer Science and Business Media Deutschland GmbH. https://doi.org/10.1007/978-3-662-45906-5_12