Suppose ln J is normally distributed with standard deviation J . Show that the price of

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Suppose ln J is normally distributed with standard deviation σ_J. Show that the price of a European vanilla option under the jump-diffusion model can be expressed as (Merton, 1976)

where V (S, T) = n=0 x' = (1+k), o = 0 + (N'T)" n! no} T -VBS (S, T; On, Tn), and rn =r=k + n ln(1 + k) T

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Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Dec 02, 2023 03:57 AM

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Suppose ln J is normally distributed with standard deviation J . Show that the price of

Question:

where V (S, T) = n=0 x' = λ(1+k), o = 0² + ¹ (N'T)" n! no} T -VBS (S, T; On, Tn), and rn = r - λk + n ln(1 + k) T

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The Merton 1976 model for pricing European vanilla options under jump diffusion involves the followi...View the full answer

Mathematical Models Of Financial Derivative

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