European option pricing when the riskfree interest rate follows a jump process

Allanus H. Tsoi; Hailiang Yang; Shu Ngai Yeung

doi:10.1080/15326340008807580

European option pricing when the riskfree interest rate follows a jump process

Allanus H. Tsoi^*, Hailiang Yang, Shu Ngai Yeung

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

7 Citations (Scopus)

Abstract

In this paper, we analyze the pricing of European option when the riskfree interest rate follows a jump process. An expression for European call price is first obtained in the case of constant volatility. Then we present a general formulation which takes care of the variation of volatility. In this general formulation we utilize a point process filtering technique to estimate the state process. Finally we carry out some numerical simulation of our results.

Original language	English
Pages (from-to)	143-166
Number of pages	24
Journal	Communications in Statistics. Part C: Stochastic Models
Volume	16
Issue number	1
DOIs	https://doi.org/10.1080/15326340008807580
Publication status	Published - 2000
Externally published	Yes

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10.1080/15326340008807580

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Tsoi, A. H., Yang, H., & Yeung, S. N. (2000). European option pricing when the riskfree interest rate follows a jump process. Communications in Statistics. Part C: Stochastic Models, 16(1), 143-166. https://doi.org/10.1080/15326340008807580

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AB - In this paper, we analyze the pricing of European option when the riskfree interest rate follows a jump process. An expression for European call price is first obtained in the case of constant volatility. Then we present a general formulation which takes care of the variation of volatility. In this general formulation we utilize a point process filtering technique to estimate the state process. Finally we carry out some numerical simulation of our results.

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European option pricing when the riskfree interest rate follows a jump process

Abstract

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