Option Pricing Under Jump-Diffusion Processes

Carl Chiarella*, Xue Zhong He, Christina Sklibosios Nikitopoulos

*Corresponding author for this work

Research output: Chapter in Book or Report/Conference proceedingChapterpeer-review


This chapter extends the hedging argument of option pricing developed for continuous diffusion processes previously to the situations when the underlying asset price is driven by the jump-diffusion stochastic differential equations. By constructing hedging portfolios and employing the capital asset pricing model, we provide an option pricing integro-partial differential equations and a general solution. We also examine alternative ways to construct the hedging portfolio and to price option when the jump sizes are fixed.

Original languageEnglish
Title of host publicationDynamic Modeling and Econometrics in Economics and Finance
PublisherSpringer Science and Business Media Deutschland GmbH
Number of pages21
Publication statusPublished - 2015
Externally publishedYes

Publication series

NameDynamic Modeling and Econometrics in Economics and Finance
ISSN (Print)1566-0419
ISSN (Electronic)2363-8370


  • Asset Price
  • Capital Asset Price Model
  • Excess Return
  • Option Price
  • Stock Price


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