2017•arXiv (Cornell University)Open access
Gibbs sampler with jump diffusion model: application in European call\n option and annuity
Kein Joe Lau, Yong Kheng Goh, An-Chow Lai
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Abstract
In this paper, we are presenting a method for estimation of market parameters\nmodeled by jump diffusion process. The method proposed is based on Gibbs\nsampler, while the market parameters are the drift, the volatility, the jump\nintensity and its rate of occurrence. Demonstration on how to use these\nparameters to estimate the fair price of European call option and annuity will\nbe shown, for the situation where the market is modeled by jump diffusion\nprocess with different intensity and occurrence. The results is compared to\nconventional options to observe the impact of jump effects.\n
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