Economy – Quantitative Finance – Pricing of Securities
Scientific paper
2010-11-04
Eur. Phys. J. B 75, 335-342 (2010)
Economy
Quantitative Finance
Pricing of Securities
9 pages, 2 figures, 1 table
Scientific paper
10.1140/epjb/e2010-00109-3
Path integral techniques for the pricing of financial options are mostly based on models that can be recast in terms of a Fokker-Planck differential equation and that, consequently, neglect jumps and only describe drift and diffusion. We present a method to adapt formulas for both the path-integral propagators and the option prices themselves, so that jump processes are taken into account in conjunction with the usual drift and diffusion terms. In particular, we focus on stochastic volatility models, such as the exponential Vasicek model, and extend the pricing formulas and propagator of this model to incorporate jump diffusion with a given jump size distribution. This model is of importance to include non-Gaussian fluctuations beyond the Black-Scholes model, and moreover yields a lognormal distribution of the volatilities, in agreement with results from superstatistical analysis. The results obtained in the present formalism are checked with Monte Carlo simulations.
Lemmens Damiaan
Liang L. Z. J.
Tempere Jacques
No associations
LandOfFree
Generalized pricing formulas for stochastic volatility jump diffusion models applied to the exponential Vasicek model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.
If you have personal experience with Generalized pricing formulas for stochastic volatility jump diffusion models applied to the exponential Vasicek model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Generalized pricing formulas for stochastic volatility jump diffusion models applied to the exponential Vasicek model will most certainly appreciate the feedback.
Profile ID: LFWR-SCP-O-146112