We derive a representation for the value process associated to the solutions of forward-backward stochastic differential equations in a jump-diffusion setting under multiple probability measures. Motivated by concrete financial problems, the latter representations are then applied to devise a generalization of the change of numéraire technique, allowing to obtain recursive pricing formulas in the presence of non-linear funding terms due to e.g. collateralization agreements.

A change of measure formula for recursive conditional expectations

Di Persio, Luca;Gnoatto, Alessandro
;
Patacca, Marco
2024-01-01

Abstract

We derive a representation for the value process associated to the solutions of forward-backward stochastic differential equations in a jump-diffusion setting under multiple probability measures. Motivated by concrete financial problems, the latter representations are then applied to devise a generalization of the change of numéraire technique, allowing to obtain recursive pricing formulas in the presence of non-linear funding terms due to e.g. collateralization agreements.
2024
Pricing, Change of measure, BSDE, Recursive conditional expectation, Non-linear valuation
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11562/1126529
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