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Convexity preserving jump-diffusion models for option pricing

Erik Ekström·Johan Tysk
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Abstract

We investigate which jump-diffusion models are convexity preserving. The study of convexity preserving models is motivated by monotonicity results for such models in the volatility and in the jump parameters. We give a necessary condition for convexity to be preserved in several-dimensional jump-diffusion models. This necessary condition is then used to show that, within a large class of possible models, the only convexity preserving models are the ones with linear coefficients.

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Erik Ekström, Johan Tysk. 2006-01-22. Convexity preserving jump-diffusion models for option pricing. https://arxiv.org/abs/math/0601526

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