Pricing turbo warrants under mixed-exponential jump diffusion model

Jianfeng Yu and Weidong Xu

Physica A: Statistical Mechanics and its Applications, 2016, vol. 451, issue C, 490-501

Abstract: Turbo warrant is a special type of barrier options in which the rebate is calculated as another exotic option. In this paper, using Laplace transforms we obtain the valuation of turbo warrant under the mixed-exponential jump diffusion model, which is able to approximate any jump size distribution. The numerical Laplace inversion examples verify that the analytical solutions are accurate. The results of simulation confirm the argument that jump risk should not be ignored in the valuation of turbo warrants.

Keywords: Exotic option; Turbo warrants; Mixed-exponential jump diffusion; Laplace transform; Euler method (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:451:y:2016:i:c:p:490-501

DOI: 10.1016/j.physa.2015.12.158

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