On the consistency of jump-diffusion dynamics for FX rates under inversion
File(s)
Accepted version
Author(s)
Graceffa, federico
Brigo, Damiano
Pallavicini, andrea
Type
Journal Article
Abstract
We investigate the consistency under inversion of jump diffusion processes in the foreign exchange market. That is, if the EUR/USD exchange rate follows a given type of dynamics, under which conditions will USD/EUR follow the same type of dynamics? After giving a numerical description of this property, we establish a suitable local volatility structure ensuring consistency. We subsequently introduce jumps and analyze both constant and random jump size. While in the first scenario consistency is automatically satisfied, the second case is more involved. A fairly general class of admissible densities for the jump size in the domestic measure is determined.
Date Issued
2020-12-10
Date Acceptance
2020-10-20
Citation
International Journal of Financial Engineering, 2020, 7 (4), pp.1-1
ISSN
2424-7863
Publisher
World Scientific
Start Page
1
End Page
1
Journal / Book Title
International Journal of Financial Engineering
Volume
7
Issue
4
Copyright Statement
© 2020 World Scientific Publishing Co Pte Ltd. Electronic version of an article published online in International Journal of Financial Engineering, 7, 4, 2020, 2050046. https://www.worldscientific.com/doi/abs/10.1142/S2424786320500462
Identifier
https://www.worldscientific.com/doi/epdf/10.1142/S2424786320500462
Publication Status
Published
Article Number
2050046
Date Publish Online
2020-12-10