Font Size: a A A

A Jump-diffusion Model For Asset Pricing

Posted on:2018-04-12Degree:MasterType:Thesis
Country:ChinaCandidate:Q W LiuFull Text:PDF
GTID:2359330515496482Subject:Probability Theory and Mathematical Statistics
Abstract/Summary:PDF Full Text Request
In this paper,we mainly focus on a double exponential jump-diffusion model for stock price dynamics and option pricing.Kou(2002)proposes this model and attempts to capture two empirical investigations:leptokurtic feature that the realized return dis-tribution of underlying assets usually has a higher peak and two asymmetric heavier tails than those of normal distribution,and the negative volatility skew phenomenon(called"volatility smile")in stock option markets.Although the classical geometric brownian motion and normal distribution,which have been widely used in the Black-Scholes-Merton option pricing framework,are simple enough and provide good analyticity for option pricing problems,they cannot capture these two empirical phenomena.Instead,the double exponential jump-diffusion model which is based on the lognormal jump-diffusion model achieve a balance between reality and analytical tractability.Under a typical rational expectation equilibrium theory,this model gives analytical solution for a variety of option pricing problem,particularly for some path-dependent options.In this article,we embed this model into a rational expectations equilibrium framework and find a risk-neutral measure.And then we provide two ways to compute the price of European call and put options.
Keywords/Search Tags:Rational Expectations Equilibrium Theory, Option Pricing, Heavy Tails, Volatility Smile, Laplace Transform
PDF Full Text Request
Related items