I don't work for Paizo, but take this for what it is worth... from the PRD, glossary, "Grappled" condition:
A grappled character who attempts to cast a spell or use a spell-like ability must make a concentration check (DC 10 + grappler's CMB + spell level), or lose the spell.
Now all I can do is picture a mage being grappled by a troll throwing jesters at the troll, going "EAT THEM INSTEAD!"
Also, a person being grappled is considered to be grappling. They both have the grappled condition.
Also:
Link to the Combat Section
Link to the Grappled Condition
Linkto the grapple flow chart.
So, upon closer reading, it looks like I was wrong.
From the linked PRD above:
Instead of attempting to break or reverse the grapple, you can take any action that doesn’t require two hands to perform, such as cast a spell or make an attack or full attack with a light or one-handed weapon against any creature within your reach, including the creature that is grappling you. See the grappled condition for additional details. If you are pinned, your actions are very limited. See the pinned condition in Conditions for additional details.
Bolding mine.
From the grappled condition:
A grappled character who attempts to cast a spell or use a spell-like ability must make a concentration check (DC 10 + grappler's CMB + spell level), or lose the spell.
There you go!
Does that cover all your questions?
EDIT: ninja'd!
I know that the person grappling can not unless they have feats that allow them to use no components, and no jesters.
What about the person grappled? Can they cast defensively at all? Is it going to be two concentration checks?
I am looking for someone within Paizo to lay down a verdict. This is, I think, a hole in the rules and modifiers listed.
1)
Can you cast a spell while grappled?:
...Instead of attempting to break or reverse the
grapple, you can take any action that doesn’t require two
hands to perform, such as cast a spell or make an attack or
full attack with a light or one-handed weapon against any
creature within your reach, including the creature that is
grappling you....
...Instead of attempting to break or reverse the
grapple, you can take any action that doesn’t require two
hands to perform, such as cast a spell or make an attack or
full attack with a light or one-handed weapon against any
creature within your reach, including the creature that is
grappling you....
2)
Nothing says you cannot cast defensively. However as both you and the person grappling you have the "Grappled" condition.
No AoO while grappling:
Grappled: A grappled creature is restrained by a creature,
trap, or effect. Grappled creatures cannot move and take a –4
penalty to Dexterity. A grappled creature takes a –2 penalty
on all attack rolls and combat maneuver checks, except those
made to grapple or escape a grapple. In addition, grappled
creatures
can take no action that requires two hands to
perform. A grappled character who attempts to cast a spell or
use a spell-like ability must make a concentration check (DC
10 + grappler’s CMB + spell level, see page 206), or lose the
spell. Grappled creatures cannot make attacks of opportunity.
A grappled creature cannot use Stealth to hide from
the creature grappling it, even if a special ability, such as
hide in plain sight, would normally allow it to do so. If
a grappled creature becomes invisible, through a spell or
other ability, it gains a +2 circumstance bonus on its CMD
to avoid being grappled, but receives no other benefit.
you need not cast defensively unless someone else is threatening you. Grappled: A grappled creature is restrained by a creature,
trap, or effect. Grappled creatures cannot move and take a –4
penalty to Dexterity. A grappled creature takes a –2 penalty
on all attack rolls and combat maneuver checks, except those
made to grapple or escape a grapple. In addition, grappled
creatures
can take no action that requires two hands to
perform. A grappled character who attempts to cast a spell or
use a spell-like ability must make a concentration check (DC
10 + grappler’s CMB + spell level, see page 206), or lose the
spell. Grappled creatures cannot make attacks of opportunity.
A grappled creature cannot use Stealth to hide from
the creature grappling it, even if a special ability, such as
hide in plain sight, would normally allow it to do so. If
a grappled creature becomes invisible, through a spell or
other ability, it gains a +2 circumstance bonus on its CMD
to avoid being grappled, but receives no other benefit.