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I'm not too sure if I interpret the question correctly, but I am inclined to say that as the call is long gamma, 'jumps' (second order moves) would always result in higher value in the delta hedged portfolio, and therefore should be built into the price of the option. So the call should be more expensive if it has jumps.


Question 1 is answered in parts 1 through to 6: the idea is that each part slowly builds the tools required to derive the process equation for $S_t$ under the $S_t$ Numeraire. Question 2 & Question 3 are then answered in part 7. Part 1: Expectation of a function of a Random variable: Let $X(t)$ be some generic Random Variable with probability density ...


I provide a solution in three steps. The first step carefully outlines how to split up the expectation and what new measures are used. This first step does not require any special model assumption and holds in a very general framework. I derive a formula for the option price that resembles the standard Black-Scholes formula. In a second step, I assume that ...


Black scholes formula based on $S_t$ measure , theory, and formulas you mention are derived in detail in "Steven Shreve: Stochastic Calculus and Finance" draft pdf from 1997 , page 328 "stock price as numeraire".

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