2010•Journal of Jiamusi UniversityRequires access

Actuarial Price of Compound Option Driven by Jump-diffusion Stochastic Process

Wenjuan Zhang

Abstract

Under the hypothesis that stocks price is driven by non-homogeneous Poisson jump-diffusion process and the expected rate μ( t) ,volatility σ( t) and risk-less rate r( t) are function of time,using physical probability measure of price process and the fair premium,the pricing for European compound option is presented. And the pricing formula for the call option on a call option is obtained.

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Available abstract

Key concepts: Jump diffusion, Call option, Jump, Short rate, Strike price, Compound Poisson process, Volatility (finance), Valuation of options