An Analytic Formula for European Options; Jump Diffusion Models with a Log Mixture Normal Jump Distribution

35 Pages Posted: 6 Nov 2018

See all articles by Thomas Lonon

Thomas Lonon

Stevens Institute of Technology

Ionut Florescu

Stevens Institute of Technology

Date Written: March 1, 2016

Abstract

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

Lonon, Thomas and Florescu, Ionut, An Analytic Formula for European Options; Jump Diffusion Models with a Log Mixture Normal Jump Distribution (March 1, 2016). Stevens Institute of Technology School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=3266586 or http://dx.doi.org/10.2139/ssrn.3266586

Thomas Lonon (Contact Author)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

Ionut Florescu

Stevens Institute of Technology ( email )

Castle Point on the Hudson
Hoboken, NJ 07030
United States

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