2004•Journal of Yangzhou UniversityRequires access

Valuation of exchange options in jump-diffusion models

Qian Xiao-song

Abstract

The problem of pricing exchange options in a jump-diffusion model is considered. The market is composed of a riskless bond and two risky assets, and the prices of a risky assets are controlled by Brownian motion and Poisson process. Using the theory of Martingale, the integro-differential equation of option pricing is derived. The exact formula for pricing exchange options is obtained.

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Key concepts: Jump diffusion, Valuation (finance), Jump, Valuation of options, Martingale pricing, Martingale (probability theory), Diffusion process, Poisson distribution