A parsimonious model for intraday European option pricing

Enrico Scalas and Mauro Politi

Papers from arXiv.org

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.

Date: 2012-02
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Working Paper: A parsimonious model for intraday European option pricing (2012)
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