A parsimonious model for intraday European option pricing

Enrico Scalas and Mauro Politi

No 2012-14, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

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.

Keywords: Option pricing; high-frequency finance; high-frequency trading; computer trading; jump-diffusion models; pure-jump models; continuous time random walks; semi-Markov processes (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-mst
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Working Paper: A parsimonious model for intraday European option pricing (2012)
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