Pricing and Hedging of Quantile Options in a Flexible Jump Diffusion Model

This paper proposes a Laplace-transform-based approach to price the fixed-strike quantile options as well as to calculate the associated hedging parameters (delta and gamma) under a hyperexponential jump diffusion model, which can be viewed as a generalization of the well-known Black–Scholes model and Kou’s double exponential jump diffusion model. By establishing a relationship between floatingand fixed-strike quantile option prices, we can also apply this pricing and hedging method to floating-strike quantile options. Numerical experiments demonstrate that our pricing and hedging method is fast, stable, and accurate.