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Option Pricing When Jump Risk Is Systematic

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  • Chang Mo Ahn
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    Abstract

    This paper generalizes the Merton jump-diffusion option pricing model to the case in which jump risk cannot be eliminated in the market portfolio. the option pricing formula is obtained using a general equilibrium asset pricing model. Since jump risk is systematic, the correlation of the underlying stock's jump with the market portfolio's jump affects the option price. Copyright 1992 Blackwell Publishers.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9965.1992.tb00034.x
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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Mathematical Finance.

    Volume (Year): 2 (1992)
    Issue (Month): 4 ()
    Pages: 299-308

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    Handle: RePEc:bla:mathfi:v:2:y:1992:i:4:p:299-308

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    Cited by:
    1. Sanjiv Ranjan Das & Rangarajan K. Sundaram, 1997. "Taming the Skew: Higher-Order Moments in Modeling Asset Price Processes in Finance," NBER Working Papers 5976, National Bureau of Economic Research, Inc.
    2. Blanchet-Scalliet, Christophette & El Karoui, Nicole & Martellini, Lionel, 2005. "Dynamic asset pricing theory with uncertain time-horizon," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1737-1764, October.
    3. Wang, Shin-Yun & Lin, Shih-Kuei, 2010. "The pricing and hedging of structured notes with systematic jump risk: An analysis of the USD knock-out reversed swap," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 106-118, January.
    4. Karl Mina & Gerald Cheang & Carl Chiarella, 2013. "Approximate Hedging of Options under Jump-Diffusion Processes," Research Paper Series 340, Quantitative Finance Research Centre, University of Technology, Sydney.

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