Options pricing in jump diffusion markets during financial crisis

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4 Citations (Scopus)

Abstract

In this paper, we suggest a jump diffusion model in markets during financial crisis. Using risk-neutral pricing, we derive a partial differential equation (P.D.E.) for the prices of European options. We find a closed form solution of the P.D.E. in the particular case where the stock price is too large. Then, we use such a solution as a boundary condition in the numerical treatment of the P.D.E. for any range of stock price. The numerical method adopted is the unconditionally stable Crank-Nicolson method. Illustrative examples are presented.

Original languageEnglish
Pages (from-to)2319-2326
Number of pages8
JournalApplied Mathematics and Information Sciences
Volume7
Issue number6
DOIs
Publication statusPublished - 2013

Keywords

  • European options
  • Financial crisis
  • Finite differences method
  • Incomplete markets
  • Jump-diffusion models
  • Series solutions

ASJC Scopus subject areas

  • Analysis
  • Numerical Analysis
  • Computer Science Applications
  • Computational Theory and Mathematics
  • Applied Mathematics

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