stochastic volatility jump-diffusion model for option pricing随机波动jump-diffusion期权定价模型.pdf

Journal of Mathematical Finance, 2011, 1, 90-97 doi:10.4236/jmf.2011.13012 Published Online November 2011 (http://www.SciRP.org/journal/jmf) Stochastic Volatility Jump-Diffusion Model for Option Pricing Nonthiya Makate, Pairote Sattayatham School of Mathematics, Suranaree University of Technology, Nakhon Ratchasima, Thailand E-mail : nonthiyam@, pairote@sut.ac.th Received July 26, 2011; revised September 2, 2011; accepted September 15, 2011 Abstract An alternative option pricing model is proposed, in which the asset prices follow the jump-diffusion model with square root stochastic volatility. The stochastic volatility follows the jump-diffusion with square root and mean reverting. We find a formulation for the European-style option in terms of characteristic functions of tail probabilities. Keywords: Jump-Diffusion Model, Stochastic Volatility, Characteristic Function, Option Pricing 1. Introduction work by incorporating jumps in volatility and their model is given by Let , ,P  be a probability space with filtration dS S dt  v dW S S Y dN S , (3) t t t t t  t t   . All processes that we shall consider in this   t 0t T dv  v dt  v dW v Z dN v . section will be defined in this space. An asset price