Option valuation under double exponential jump with stochastic intensity, stochastic interest rates and Markov regime-switching stochastic volatility

Yong Ma, Li Chen and Jianping Lyu

Communications in Statistics - Theory and Methods, 2023, vol. 52, issue 7, 2043-2056

Abstract: In this paper, we present a double exponential jump-diffusion option pricing model with stochastic interest rates, stochastic volatility, and stochastic jump intensity. In addition, Markov regime-switching is introduced to modulate the mean-reverting level of the squared volatility. We obtain the analytical pricing formulae for European options under this model. Finally, we use numerical examples to explore the effects of the regime-switching, stochastic jump intensity and the distribution of jump size on the option price or (and) the implied volatility.

Date: 2023
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DOI: 10.1080/03610926.2021.1944214

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