A parsimonious model for intraday European option pricing

Details A parsimonious model for intraday European option pricing A parsimonious model for intraday European option pricing

2012-02-20

arxiv.org/abs/1202.4332v1

Economy

Quantitative Finance

Pricing of Securities

Submitted to Economics E-Journal: http://www.economics-ejournal.org/economics/discussionpapers/2012-14

Scientific paper

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.

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