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Decomposition of the option pricing formula for infinite activity jump-diffusion stochastic volatility models

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  • El-Khatib, Youssef
  • Makumbe, Zororo S.
  • Vives, Josep

Abstract

Let the log returns of an asset Xt=log(St) be defined on a risk neutral filtered probability space (Ω,F,(Ft)t∈[0,T],P) for some 0

Suggested Citation

  • El-Khatib, Youssef & Makumbe, Zororo S. & Vives, Josep, 2025. "Decomposition of the option pricing formula for infinite activity jump-diffusion stochastic volatility models," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 231(C), pages 276-293.
    • Handle: RePEc:eee:matcom:v:231:y:2025:i:c:p:276-293
    DOI: 10.1016/j.matcom.2024.12.010
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    References listed on IDEAS

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    1. Dilip B. Madan & Peter P. Carr & Eric C. Chang, 1998. "The Variance Gamma Process and Option Pricing," Review of Finance, European Finance Association, vol. 2(1), pages 79-105.
    2. Elisa Alòs & Rafael De Santiago & Josep Vives, 2015. "Calibration Of Stochastic Volatility Models Via Second-Order Approximation: The Heston Case," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(06), pages 1-31.
    3. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    4. Marc Lagunas-Merino & Salvador Ortiz-Latorre, 2020. "A decomposition formula for fractional Heston jump diffusion models," Papers 2007.14328, arXiv.org.
    5. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," The Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
    6. R. Merino & J. Pospíšil & T. Sobotka & J. Vives, 2018. "Decomposition Formula For Jump Diffusion Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(08), pages 1-36, December.
    7. Youssef El-Khatib & Zororo S. Makumbe & Josep Vives, 2024. "Approximate option pricing under a two-factor Heston–Kou stochastic volatility model," Computational Management Science, Springer, vol. 21(1), pages 1-28, June.
    8. Takuji Arai, 2022. "Approximate Option Pricing Formula For Barndorff-Nielsen And Shephard Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 25(02), pages 1-26, March.
    9. R. Merino & J. Pospíšil & T. Sobotka & J. Vives, 2018. "Decomposition Formula For Jump Diffusion Models," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 21(08), pages 1-36, December.
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