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Pricing turbo warrants under mixed-exponential jump diffusion model

Author

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  • Yu, Jianfeng
  • Xu, Weidong

Abstract

Turbo warrant is a special type of barrier options in which the rebate is calculated as another exotic option. In this paper, using Laplace transforms we obtain the valuation of turbo warrant under the mixed-exponential jump diffusion model, which is able to approximate any jump size distribution. The numerical Laplace inversion examples verify that the analytical solutions are accurate. The results of simulation confirm the argument that jump risk should not be ignored in the valuation of turbo warrants.

Suggested Citation

  • Yu, Jianfeng & Xu, Weidong, 2016. "Pricing turbo warrants under mixed-exponential jump diffusion model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 490-501.
    • Handle: RePEc:eee:phsmap:v:451:y:2016:i:c:p:490-501
    DOI: 10.1016/j.physa.2015.12.158
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    References listed on IDEAS

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