A parsimonious model for intraday European option pricing
AbstractA 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. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2012-14.
Date of creation: 2012
Date of revision:
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:
- Enrico Scalas & Mauro Politi, 2012. "A parsimonious model for intraday European option pricing," Papers 1202.4332, arXiv.org.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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