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Gauge Transformations in the Dual Space, and Pricing and Estimation in the Long Run in Affine Jump-Diffusion Models
We suggest a simple reduction of pricing European options in affine jump-diffusion models to pricing options with modified payoffs in diffusion models. The procedure is based on the conjugation of the infinitesimal generator of the model with an operator of the form $e^{i\Phi(-\sqrt{-1}\dd_x)}$ (gauge transformation in the dual space). A …