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Option Pricing When Jump Risk Is Systematic1

Chang Mo Ahn

Open publisher page 37 citations

Abstract

This paper generalizes the Merton jump‐diffusion option pricing model to the case in which jump risk cannot be eliminated in the market portfolio. the option pricing formula is obtained using a general equilibrium asset pricing model. Since jump risk is systematic, the correlation of the underlying stock's jump with the market portfolio's jump affects the option price.

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What this paper is about

This paper generalizes the Merton jump‐diffusion option pricing model to the case in which jump risk cannot be eliminated in the market portfolio. the option pricing formula is obtained using a general equilibrium asset pricing model. Since jump risk is systematic, the correlation of the underlying stock's jump with the market portfolio's jump affects the option price.

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OpenAlex reports 37 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

This paper generalizes the Merton jump‐diffusion option pricing model to the case in which jump risk cannot be eliminated in the market portfolio. the option pricing formula is obtained using a general equilibrium asset pricing model. Since jump risk is systematic, the correlation of the underlying stock's jump with the market portfolio's jump affects the option price.

Key concepts: Jump, Jump diffusion, Economics, Valuation of options, Portfolio, Capital asset pricing model, Rational pricing, Market portfolio

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