Abstract
This paper applies the uncertain nonlinear parameter approach, originally by Avellaneda et al. and Lyons, to model non-local changes in financial variables and the resulting impact on portfolios of derivatives and their underlying assets. It formulates the non-probabilistic uncertainty assumptions as a governing system of nonlinear PDEs about both the spatial and the time dimensions of the variables. The solution technique can be decomposed as a control problem for the former and a free-boundary problem for the latter. It is shown that, modelled in a non-probabilistic way any jump in a variable can be treated in the same manner as a dividend on equity.
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© 2002 Springer-Verlag Berlin Heidelberg
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Bakstein, D., Wilmott, P. (2002). Non-Probabilistic Jump Modelling for Financial Derivatives. In: Anile, A.M., Capasso, V., Greco, A. (eds) Progress in Industrial Mathematics at ECMI 2000. Mathematics in Industry, vol 1. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-04784-2_7
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DOI: https://doi.org/10.1007/978-3-662-04784-2_7
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-07647-3
Online ISBN: 978-3-662-04784-2
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