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Average Options For Jump Diffusion Models

Author

Listed:
  • HIROSHI KUNITA

    (Department of Mathematical Science, Nanzan University, Japan)

  • TAKUYA YAMADA

    (Department of Mathematical Science, Nanzan University, Japan)

Abstract

In this paper, we study the problem of pricing average strike options in the case where the price processes are jump diffusion processes. As to the striking value we take the geometric average of the price process. Two cases are studied in details: One is the case where the jumping law of the price process is subject to a Gaussian distribution called Merton model, and the other is the case where the jumping law is subject to a double exponential distribution called Kou model. In both cases the price of the average strike option is represented as a time average of a suitable European put option.

Suggested Citation

  • Hiroshi Kunita & Takuya Yamada, 2010. "Average Options For Jump Diffusion Models," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 27(02), pages 143-166.
    • Handle: RePEc:wsi:apjorx:v:27:y:2010:i:02:n:s0217595910002612
    DOI: 10.1142/S0217595910002612
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