Advanced Search
MyIDEAS: Login

A parsimonious model for intraday European option pricing

Contents:

Author Info

  • Scalas, Enrico
  • Politi, Mauro

Abstract

A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general formula for the martingale price of a European call option. A complete derivation of this result is presented by means of elementary probabilistic tools. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics-ejournal.org/economics/discussionpapers/2012-14
Download Restriction: no

File URL: http://econstor.eu/bitstream/10419/55515/1/685572315.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2012-14.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:zbw:ifwedp:201214

Contact details of provider:
Postal: Kiellinie 66, D-24105 Kiel
Phone: +49 431 8814-1
Fax: +49 431 8814528
Email:
Web page: http://www.economics-ejournal.org/
More information through EDIRC

Related research

Keywords: Option pricing; high-frequency finance; high-frequency trading; computer trading; jump-diffusion models; pure-jump models; continuous time random walks; semi-Markov processes;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Scalas, Enrico & Gorenflo, Rudolf & Mainardi, Francesco, 2000. "Fractional calculus and continuous-time finance," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 284(1), pages 376-384.
  2. Miquel Montero, 2007. "Renewal equations for option pricing," Papers 0711.2624, arXiv.org, revised Jun 2008.
  3. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144.
  4. Robert F. Engle & Jeffrey R. Russell, 1998. "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Transaction Data," Econometrica, Econometric Society, vol. 66(5), pages 1127-1162, September.
  5. Enrico Scalas, 2006. "Mixtures of compound Poisson processes as models of tick-by-tick financial data," Papers physics/0608217, arXiv.org.
  6. Meerschaert, Mark M. & Scalas, Enrico, 2006. "Coupled continuous time random walks in finance," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 114-118.
  7. Francesco Mainardi & Marco Raberto & Rudolf Gorenflo & Enrico Scalas, 2000. "Fractional calculus and continuous-time finance II: the waiting-time distribution," Papers cond-mat/0006454, arXiv.org, revised Nov 2000.
  8. Álvaro Cartea, 2010. "Derivatives pricing with marked point processes using Tick-by-tick dataR," Business Economics Working Papers wb101604, Universidad Carlos III, Departamento de Economía de la Empresa.
  9. Raberto, Marco & Scalas, Enrico & Mainardi, Francesco, 2002. "Waiting-times and returns in high-frequency financial data: an empirical study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 314(1), pages 749-755.
  10. Scalas, Enrico, 2006. "The application of continuous-time random walks in finance and economics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 362(2), pages 225-239.
  11. Enrico Scalas, 2011. "A class of CTRWs: Compound fractional Poisson processes," Papers 1103.0647, arXiv.org.
  12. Engle, Robert F. & Russell, Jeffrey R., 1997. "Forecasting the frequency of changes in quoted foreign exchange prices with the autoregressive conditional duration model," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 187-212, June.
  13. Gerald Cheang & Carl Chiarella, 2011. "A Modern View on Merton's Jump-Diffusion Model," Research Paper Series 287, Quantitative Finance Research Centre, University of Technology, Sydney.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:ifwedp:201214. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.