European Option Pricing under the Double Exponential Jump Model with Stochastic Interest Rate, Stochastic Volatility and Stochastic Intensity

Abstract:

This paper explores the valuation of European options when the underlying asset follows the double exponential jump process with stochastic rate, stochastic volatility and stochastic intensity. This model better describes market characteristics, such as the volatility smile, and jump behavior. By using FFT (Fast Fourier Transform) approach, a closed form representation of the characteristic function of the process is derived for the valuation of European options. Numerical results show that the FFT method is effective and competent.

• Periodical: Applied Mechanics and Materials (Volumes 631-632)
• Pages: 1325-1328
• DOI: https://doi.org/10.4028/www.scientific.net/AMM.631-632.1325
• Online since: September 2014
• Authors: Jin Yan Sang, Na Zhang*, Ming Jian
• Keywords: Double Exponential Jump, Option Pricing, Stochastic Intensity, Stochastic Rate, Stochastic Volatility

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