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The pricing formula of stock option with the rules of limit up and limit down

LI Shi-yin

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Abstract

Based on the idea of jump and pervasion by Merton,a model for underlying asset price with a diffusion process involving jump and pervasion was established.By applying Ito-Skorohod formula and martingale pricing sleight within the framework of our model,a closed form analytic solution for the pricing formula of stock option with the rules of limit up and limit down was derived.Then,the idiographic forms on the different circumstances by stochastic simulation and center limit theorem is discussed.

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Based on the idea of jump and pervasion by Merton,a model for underlying asset price with a diffusion process involving jump and pervasion was established.By applying Ito-Skorohod formula and martingale pricing sleight within the framework of our model,a closed form analytic solution for the pricing formula of stock option with the rules of limit up and limit down was derived.Then,the idiographic forms on the different circumstances by stochastic simulation and center limit theorem is discussed.

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Available abstract

Based on the idea of jump and pervasion by Merton,a model for underlying asset price with a diffusion process involving jump and pervasion was established.By applying Ito-Skorohod formula and martingale pricing sleight within the framework of our model,a closed form analytic solution for the pricing formula of stock option with the rules of limit up and limit down was derived.Then,the idiographic forms on the different circumstances by stochastic simulation and center limit theorem is discussed.

Key concepts: Limit (mathematics), Martingale (probability theory), Nomothetic and idiographic, Jump diffusion, Mathematics, Mathematical economics, Jump, Stock (firearms)

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