Semi-discretization Algorithm for Option Pricing in CEV Jump-diffusion Model

2016 Revista Técnica de la Facultad de Ingeniería Universidad del Zulia  
This paper proposes an option pricing technique we developed to approximate hedge jump risk under a CEV jumpdiffusion model. First, we established the options pricing model and the its partial differential equation by applying the Itô formula and non-arbitrage principle based on approximating hedge jump risk approximation; we next developed the concrete numerical algorithm for the equation by semi-discretizing the spatial variable. Finally, we verified the model's stability, convergence and
more » ... ctiveness through numerical experiments on a simulated pricing option scenario.
doi:10.21311/001.39.3.7 fatcat:depkyglydff67fs2peyepclg4u