Jump-diffusion models: a practitioner’s guide
نویسندگان
چکیده
The goal of this paper is to show that the jump-diffusion models are an essential and easy-to-learn tool for option pricing and risk management, and that they provide an adequate description of stock price fluctuations and market risks. We try to give an overview of the field without focusing on technical details. After introducing several widely used jump-diffusion models, we discuss Fourier transform based methods for European option pricing, partial differential equations for barrier and American options, and the existing approaches to calibration and hedging.
منابع مشابه
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...
متن کاملPricing of Commodity Futures Contract by Using of Spot Price Jump-Diffusion Process
Futures contract is one of the most important derivatives that is used in financial markets in all over the world to buy or sell an asset or commodity in the future. Pricing of this tool depends on expected price of asset or commodity at the maturity date. According to this, theoretical futures pricing models try to find this expected price in order to use in the futures contract. So in this ar...
متن کاملClosed formulas for the price and sensitivities of European options under a double exponential jump diffusion model
We derive closed formulas for the prices of European options andtheir sensitivities when the underlying asset follows a double-exponentialjump diffusion model, as considered by S. Kou in 2002. This author hasderived the option price by making use of double series where each termrequires the computation of a sequence of special functions, such thatthe implementation remains difficult for a large...
متن کاملPricing of Futures Contracts by Considering Stochastic Exponential Jump Domain of Spot Price
Derivatives are alternative financial instruments which extend traders opportunities to achieve some financial goals. They are risk management instruments that are related to a data in the future, and also they react to uncertain prices. Study on pricing futures can provide useful tools to understand the stochastic behavior of prices to manage the risk of price volatility. Thus, this study eval...
متن کامل