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Assessing the impact of jumps in an option pricing model: A gradient estimation approach

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  • Volk-Makarewicz, Warren
  • Borovkova, Svetlana
  • Heidergott, Bernd

Abstract

Motivated by model risk considerations, we develop a statistical procedure that determines whether the inclusion of a jump component in a simpler, diffusion-based price model significantly influences the prices of specific options on this underlying.

Suggested Citation

  • Volk-Makarewicz, Warren & Borovkova, Svetlana & Heidergott, Bernd, 2022. "Assessing the impact of jumps in an option pricing model: A gradient estimation approach," European Journal of Operational Research, Elsevier, vol. 298(2), pages 740-751.
    • Handle: RePEc:eee:ejores:v:298:y:2022:i:2:p:740-751
    DOI: 10.1016/j.ejor.2021.07.015
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    References listed on IDEAS

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