A note on a new approach to both price and volatility jumps: an application to the portfolio model

Authors

  • Moawia Alghalith Department of Economics, University of the West Indies, St. Augustine, Trinidad.

DOI:

https://doi.org/10.21914/anziamj.v58i0.8582

Keywords:

jump diffusion, stochastic volatility, partial differential equations, Hamilton–Jacobi–Bellman equations, viscosity solutions

Abstract

A new approach to jump diffusion is introduced, where the jump is treated as a vertical shift of the price (or volatility) function. This method is simpler than the previous methods and it is applied to the portfolio model with a stochastic volatility. Moreover, closed-form solutions for the optimal portfolio are obtained. The optimal closed-form solutions are derived when the value function is not smooth, without relying on the method of viscosity solutions. doi:10.1017/S1446181116000171

Published

2017-01-31

Issue

Vol. 58 (2016)

Section

Articles for Printed Issues