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Title:A parsimonious model for intraday European option pricing PDF Logo
Authors:Scalas, Enrico
Politi, Mauro
Issue Date:2012
Series/Report no.:Economics Discussion Papers 2012-14
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.
Subjects:Option pricing
high-frequency finance
high-frequency trading
computer trading
jump-diffusion models
pure-jump models
continuous time random walks
semi-Markov processes
JEL:G13
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Working Paper
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers

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