Option pricing with discrete time jump processes

Asymmetric Jump Processes: Option Pricing Implications

Approximating GARCH-Jump Models, Jump-Diffusion Processes, and Option Pricing

This paper considers the pricing of options when there are jumps in the pricing kernel and correlated jumps in asset prices and volatilities. We extend theory developed by Nelson (1990) and Duan (1997) by considering limiting models for our resulting approximating GARCH-Jump process. Limiting cases of our processes consist of models where both asset price and local volatility follow jump diffus...

Option Pricing for Pure Jump Processes with Markov Switching Compensators

The paper proposes a model for asset prices which is the exponential of a pure jump process with anN -state Markov switching compensator. This model extends that of Madan and Konikov. Such a process has a good chance of capturing all empirical stylized features of stock price dynamics. A closed form representation of its characteristic function is given. Option pricing is formulated in Fourier ...

Option Pricing on Commodity Prices Using Jump Diffusion Models

In this paper, we aim at developing a model for option pricing to reduce the risks associated with Ethiopian commodity prices fluctuations. We used the daily closed Unwashed Lekempti grade 5 (ULK5) coffee and Whitish Wollega Sesame Seed Grade3 (WWSS3) prices obtained from Ethiopia commodity exchange (ECX) market to analyse the prices fluctuations.The natures of log-returns of the prices exhibit a...

Time-Changed Lévy Processes and Option Pricing

The classic Black-Scholes option pricing model assumes that returns follow Brownian motion, but return processes differ from this benchmark in at least three important ways. First, asset prices jump, leading to non-normal return innovations. Second, return volatilities vary stochastically over time. Third, returns and their volatilities are correlated, often negatively for equities. Time-change...