Pricing European-Style Options Under Jump Diffusion Processes with Stochastic Volatility
Author | : Artur Sepp |
Publisher | : |
Total Pages | : 30 |
Release | : 2014 |
ISBN-10 | : OCLC:1308967158 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Pricing European-Style Options Under Jump Diffusion Processes with Stochastic Volatility written by Artur Sepp and published by . This book was released on 2014 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper surveys the developments in the finance literature with respect to applying the Fourier transform for option pricing under affine jump-diffusions. We provide a broad description of the issues and a detailed summary of the main points and features of the models proposed. First, we consider a wide class of affine jump-diffusions proposed for the asset price dynamics: jump-diffusions, diffusions with stochastic volatility, jump-diffusions with stochastic volatility, and jump-diffusions with stochastic volatility and jump intensity. Next we apply the Fourier transform for solving the problem of European option pricing under these price processes. We present two solution methods: the characteristic formula and the Black-Scholes-style formula. Finally, we discuss numerical implementation of pricing formulas and apply the considered processes for modeling the DAX options volatility surface.