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A NOTE ON A NEW APPROACH TO BOTH PRICE AND VOLATILITY JUMPS: AN APPLICATION TO THE PORTFOLIO MODEL
Published online by Cambridge University Press: 08 September 2016
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.
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- Research Article
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- © 2016 Australian Mathematical Society
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