A fast Fourier transform technique for pricing European options with stochastic volatility and jump risk
type: Item
instance of: scholarly article
title: A fast Fourier transform technique for pricing European options with stochastic volatility and jump risk
zbMATH Open document ID: 1264.91142
DOI: 10.1155/2012/761637
author: Sumei Zhang
author: Lihe Wang
published in: Mathematical Problems in Engineering
publication date: 2013-06-11T00:00:00Z
review text: Summary: We consider European options pricing with double jumps and stochastic volatility. We derived closed-form solutions for European call options in a double exponential jump-diffusion model with stochastic volatility (SVDEJD). We developed fast and accurate numerical solutions by using fast Fourier transform (FFT) technique. We compared the density of our model with those of other models, including the Black-Scholes model and the double exponential jump-diffusion model. At last, we analyzed several effects on option prices under the proposed model. Simulations show that the SVDEJD model is suitable for modelling the long-time real-market changes and stock returns are negatively correlated with volatility. The model and the proposed option pricing method are useful for empirical analysis of asset returns and managing the corporate credit risks.
Mathematics Subject Classification ID: 91G60
Mathematics Subject Classification ID: 91G20
Mathematics Subject Classification ID: 65T50
Mathematics Subject Classification ID: 60H30
zbMATH DE Number: 6173556
Wikidata QID: Q58911799
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2012/761637
OpenAlex ID: W1981198136
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description: scientific article; zbMATH DE number 6173556