Option Pricing with Jumps

Wilmott Magazine, pp. 50-58, November 2003

19 Pages Posted: 1 Jun 2009

Date Written: August 1, 2003

Abstract

This paper discusses European option pricing under various discontinuous conditions: option and underlying prices as well as volatility and drift coefficients experience breaks. We consider vanilla and double-barrier options under double-exponential jump diffusion model with jump drift and jump volatility. Our approach consists in applying Laplace transform directly to the pricing equation with further computing option prices and risk parameters via numerical inversion of their Laplace transforms. We focus on simple close-form and quasi-close-form solutions.

Keywords: jump-diffusion, regime switching, Laplace transfrom, Barrier options

JEL Classification: C00,G00

Suggested Citation

Sepp, Artur and Skachkov, Igor, Option Pricing with Jumps (August 1, 2003). Wilmott Magazine, pp. 50-58, November 2003 , Available at SSRN: https://ssrn.com/abstract=1412340

Artur Sepp (Contact Author)

Quantica Capital AG ( email )

Zurich
Switzerland

HOME PAGE: http://artursepp.com

Igor Skachkov

Independent ( email )

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