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A parsimonious model for intraday European option pricing

Author

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  • Enrico Scalas
  • Mauro Politi

Abstract

A 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.

Suggested Citation

  • Enrico Scalas & Mauro Politi, 2012. "A parsimonious model for intraday European option pricing," Papers 1202.4332, arXiv.org.
    • Handle: RePEc:arx:papers:1202.4332
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    File URL: http://arxiv.org/pdf/1202.4332
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    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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