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A Note on the Kou’s Continuity Correction Formula

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DOI: 10.4236/jss.2015.311005    2,729 Downloads   3,211 Views  

ABSTRACT

This article introduces a hyper-exponential jump diffusion process based on the continuity correction for discrete barrier options under the standard B-S model, using measure transformation and stopping time theory to prove the correction, thus broadening the conditions of the continuity correction of Kou.

Cite this paper

Liu, T. , Feng, C. , Lu, Y. and Yao, B. (2015) A Note on the Kou’s Continuity Correction Formula. Open Journal of Social Sciences, 3, 28-34. doi: 10.4236/jss.2015.311005.

Conflicts of Interest

The authors declare no conflicts of interest.

References

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[8] Cai, N. (2009) On First Passage Times of a Hyper-Exponential Jump Diffusion Process. Operations Research Letters, 37, 127-134. http://dx.doi.org/10.1016/j.orl.2009.01.002
[9] Thakoor, N., Tangman, D.Y. and Bhuruth, M. (2014) Efficient and High Accuracy Pricing of Barrier Options under the CEV Diffusion. Journal of Computational and Applied Mathematics, 259, 182-193. http://dx.doi.org/10.1016/j.cam.2013.05.009
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