Stochastic Volatility Jump-Diffusion Model for Option Pricing

Nonthiya Makate, Pairote Sattayatham

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DOI: 10.4236/jmf.2011.13012                

Abstract

An alternative option pricing model is proposed, in which the asset prices follow the jump-diffusion model with square root stochastic volatility. The stochastic volatility follows the jump-diffusion with square root and mean reverting. We find a formulation for the European-style option in terms of characteristic functions of tail probabilities.

Keywords

Jump-Diffusion Model, Stochastic Volatility, Characteristic Function, Option Pricing

Conflicts of Interest

The authors declare no conflicts of interest.

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