2016•Unpublished venueRequires access

The Full Jump‐Diffusion Model

Emanuel Derman, Michael B. Miller

Abstract

Merton's equation for option prices in a jump-diffusion model. A trinomial version of jump-diffusion, and its calibration. A compensated drift to match the riskless rate. The value of a call in a jump-diffusion model. A qualitative description of the effect of jump-diffusion on the smile. A simple approximate analytic formula for the jump-diffusion smile.

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Available abstract

Key concepts: Jump diffusion, Trinomial, Jump, Diffusion, Mathematics, Statistical physics, Value (mathematics), Applied mathematics