Option Pricing Under a Mixed-Exponential Jump Diffusion Model

This paper aims to extend the analytical tractability of the Black-Scholes model to alternative models with arbitrary jump size distributions. More precisely, we propose a jump diffusion model for asset prices whose jump sizes have a mixed-exponential distribution, which is a weighted average of exp...

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Bibliographic Details
Published in:	Management science Vol. 57; no. 11; pp. 2067 - 2081
Main Authors:	Cai, Ning, Kou, S. G.
Format:	Journal Article
Language:	English
Published:	Hanover, MD INFORMS 01.11.2011 Institute for Operations Research and the Management Sciences
Subjects:	Algorithms Alternative approaches Applications Applied sciences Approximation Asset pricing barrier options Calibration Call options Diffusion index Diffusion models Distribution Distribution theory Economic models European option Exact sciences and technology Experimental economics Experiments first passage times Insurance, economics, finance jump diffusion Jump diffusion model Laplace transformation Laplace transforms lookback options Management science Mathematical economics Mathematical models Mathematics Merton's normal jump diffusion model Microelectromechanical systems mixed-exponential distributions Modeling Monte Carlo methods Normal distribution Operational research and scientific management Operational research. Management science Option pricing Options (Finance) Portfolio theory Prices Probability and statistics Probability theory and stochastic processes Sciences and techniques of general use Securities prices Size distribution Statistics Stochastic models Studies United States Euler equation Exponential distribution Differential equation Black Scholes model Gaussian distribution Inversion Modeling jump diffusion mixed-exponential distributions Stock exchange Pricing Diffusion process Jump process barrier options Integrodifferential equation Analytical solution Mixed distribution Heavy tail Calibration Mean estimation Weighting first passage times lookback options Mixed model Merton's normal jump diffusion model First passage time Distribution tail Laplace transformation Financial option Tariffication Maturity
ISSN:	0025-1909, 1526-5501
Online Access:	Get full text
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