Pricing options under simultaneous stochastic volatility and jumps: A simple closed-form formula without numerical/computational methods

Moawia Alghalith

Physica A: Statistical Mechanics and its Applications, 2020, vol. 540, issue C

Abstract: We overcome the limitations of the previous literature in the European options pricing. In doing so, we provide a closed-form formula that does not require any numerical/computational methods. The formula is as simple as the classical Black–Scholes pricing formula. In addition, we simultaneously include jumps and stochastic volatility. Our approach implies the introduction of a new class of stochastic processes that are based on Clifford algebras. The approach can be easily generalized to higher dimensional problems.

Keywords: Option pricing; Stochastic volatility; Jump diffusion; Closed-form solution; The Black–Scholes PDE (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:540:y:2020:i:c:s0378437119317492

DOI: 10.1016/j.physa.2019.123100

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