A Parsimonious Model for Intraday European Option Pricing
affiliation not provided to SSRN
International Christian University; Ecole Centrale Paris
Economics Discussion Paper No. 2012-14
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general formula for the martingale price of a European call option. A complete derivation of this result is presented by means of elementary probabilistic tools.
Number of Pages in PDF File: 14
Keywords: Option pricing, high-frequency finance, high-frequency trading, computer trading, jump-diffusion models, pure-jump models, continuous time random walks, semi-Markov processes
JEL Classification: G13working papers series
Date posted: February 20, 2012
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