Pricing of Bi-direction European options on stocks driven by Poisson jump diffusion process
ZHANG Li-na, LIU Xin-ping, NING Li-juan
(College of Mathematics and Information Science, Shaanxi Normal University, Xi′an 710062, Shaanxi, China)
Abstract:
Under the assumptions that stock price process is driven by non-homogeneous Poisson jump-diffusion process, the expected rate, volatility and risk-less rate are functions of time, using the method of insurance actuary pricing by physical probabilistic measure of pricing process and the principle of fair premium, some pricing formulas of Bi-direction European options considering the price of stock dividend-payment are obtained.
KeyWords:
Poisson jump-diffusion process; insurance actuary pricing; European bi-direction option; dividend; stochastic differential equation
