An Analytic Formula for European Options; Jump Diffusion Models with a Log Mixture Normal Jump Distribution
35 Pages Posted: 6 Nov 2018
Date Written: March 1, 2016
In this paper, we propose an approach to modeling the jump component of a jump- diffusion model using a log mixture of normals distribution. We define explicitly the properties of the distribution and use it to create an analytic formula for European option price. Numerous examples of applications of the formula are presented to exhibit practical utility of the formula.
Keywords: option pricing, jump diffusion, log mix-norm
Suggested Citation: Suggested Citation