The stock jumps of the underlying assets underpinning the Margrabe options have been studied by Cheang and Chiarella [Cheang, GH and Chiarella C (2011). Exchange options under jump-diffusion dynamics. Applied Mathematical Finance, 18(3), 245–276], Cheang and Garces [Cheang, GHL and Garces LPDM (2020). Representation of exchange option prices under stochastic volatility jump-diffusion dynamics. Quantitative Finance, 20(2), 291–310], Cufaro Petroni and Sabino [Cufaro Petroni, N and Sabino P (2020). Pricing exchange options with correlated jump diffusion processes. Quantitate Finance, 20(11), 1811–1823], and Ma et al. [Ma, Y, Pan D and Wang T (2020). Exchange options under clustered jump dynamics. Quantitative Finance, 20(6), 949–967]. Although the authors argue that they explored stock jumps under Hawkes processes, those processes are the Poisson process in their applications. Thus, they studied Hawkes processes in-between two assets while this study explores Hawkes process within any asset. Furthermore, the Poisson process can be flipped into Hawkes process and vice versa. In terms of hedging, this study uses specific Greeks (rho and phi) while some of the mentioned studies used other Greeks (Delta, Theta, Vega, and Gamma). Moreover, hedging is carried out under static and dynamic environments. The results illustrate that the jumpy Margrabe option can be extended to complex barrier option and waiting to invest option. In addition, hedging strategies are robust both under static and dynamic environments.
Large and moderate deviations for a discrete-time marked Hawkes process
