Option pricing using the fast Fourier transform under the double exponential jump model with stochastic volatility and stochastic intensity

Jiexiang Huang*, Wenli Zhu, Xinfeng Ruan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

31 Citations (Scopus)

Abstract

This paper is based on the FFT (Fast Fourier Transform) approach for the valuation of options when the underlying asset follows the double exponential jump process with stochastic volatility and stochastic intensity. Our model captures three terms structure of stock prices, the market implied volatility smile, and jump behavior. Via the FFT method, numerical examples using European call options show effectiveness of the proposed model. Meanwhile, numerical results prove that the FFT approach is considerably correct, fast and competent.

Original languageEnglish
Pages (from-to)152-159
Number of pages8
JournalJournal of Computational and Applied Mathematics
Volume263
DOIs
Publication statusPublished - Jun 2014
Externally publishedYes

Keywords

  • Double exponential jump
  • Fast Fourier transform
  • Option pricing
  • Stochastic intensity
  • Stochastic volatility

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