Pricing Formula for Power Options with Jump-Diffusion

Authors

Siti Nur Iqmal Ibrahim, Department of Mathematics, Faculty of Science, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia\\ Institute for Mathematical Research, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, MalaysiaFollow
John G. O’Hara, Centre for Computational Finance and Economic Agents, University of Essex, Colchester CO4 3SQ, United KingdomFollow
Muhammad Syazwan Mohd Zaki, Department of Mathematics, Faculty of Science, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, MalaysiaFollow

Author Country (or Countries)

Malaysia

Abstract

Payoff of a power option is typified by its underlying share price raised to a constant power. Also known as leveraged option, a minor change in its underlying may lead to a significant change in its price. In this study, we derive pricing formula for power options using the martingale approach when the underlying asset follows a jump-diffusion process.

Digital Object Identifier (DOI)

http://dx.doi.org/10.18576/amis/100410

Recommended Citation

Nur Iqmal Ibrahim, Siti; G. O’Hara, John; and Syazwan Mohd Zaki, Muhammad (2016) "Pricing Formula for Power Options with Jump-Diffusion," Applied Mathematics & Information Sciences: Vol. 10: Iss. 4, Article 10.
DOI: http://dx.doi.org/10.18576/amis/100410
Available at: https://digitalcommons.aaru.edu.jo/amis/vol10/iss4/10