2008•Shuxue de shijian yu renshiRequires access

Pricing of Option Based on Jump-Diffusion Stochastic Process

Zhang Li-bing, Pan De-hui

Abstract

The arrival of important information may cause the stock price to jump.Supposing that the information coming is a renewal process,this paper studies the pricing of stock option using the hedge and APT theory,deduces the partial differential equation that the stock option obeys when the underlying stock price obeys renewal jump-diffusion process,obtains the pricing formula by Feynman-Kac Formula,then validate the result with a example.

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Available abstract

Key concepts: Jump diffusion, Jump, Stock (firearms), Stochastic differential equation, Valuation of options, Diffusion process, Stock price, Jump process