Option pricing under a double exponential jump diffusion model

• 成果类型: Article
• 署名作者: Kou, SG; Wang, H
• 署名单位: Columbia University; Brown University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1030.0163
• 发表日期: 2004
• 页码: 1178-1192
• 关键词: CONTINGENT CLAIMS; high peak; Heavy Tails; Volatility smile; overshoot

摘要

Analytical tractability is one of the challenges faced by many alternative models that try to generalize the Black-Scholes option pricing model to incorporate more empirical features. The aim of this paper is to extend the analytical tractability of the Black-Scholes model to alternative models with jumps. We demonstrate that a double exponential jump diffusion model can lead to an analytic approximation for finite-horizon American options (by extending the Barone-Adesi and Whaley method) and analytical solutions for popular path-dependent options (such as lookback, barrier, and perpetual American options). Numerical examples indicate that the formulae are easy to implement, and are accurate.