OPTION PRICING FOR A JUMP DIFFUSION MODEL WITH FRACTIONAL

ARTHIT  INTARASIT; PAIROTE  SATTAYATHAM

OPTION PRICING FOR A JUMP DIFFUSION MODEL WITH FRACTIONAL

Authors

ARTHIT INTARASIT Department of Mathematics and Computer Science, Prince of Songkla University, Pattani Campus, Thailand
PAIROTE SATTAYATHAM School of Mathematics, SUT, Thailand

Keywords:

Fractional Brownian motion, Approximate approach, Stochastic Volatility, Jump diffusion model

Abstract

An alternative stochastic volatility model with jumps is proposed, in which stock prices follow a jump diffusion model and their stochastic volatility follows a fractional stochastic volatility model. By using an approximate method, we find a formulation for the European-style option in terms of the characteristic function of tail probabilities.