Pricing vulnerable options with jump clustering

Yong Ma, Keshab Shrestha, Weidong Xu

Research output: Contribution to journalArticleResearchpeer-review

31 Citations (Scopus)

Abstract

This paper presents a valuation of vulnerable European options using a model with self-exciting Hawkes processes that allow for clustered jumps rather than independent jumps. Many existing valuation models can be regarded as special cases of the model proposed here. Using numerical analyses, this study also performs sensitivity analyses and compares the results to those of existing models for European call options. The results show that jump clustering has a significant impact on the option value.

Original languageEnglish
Pages (from-to)1155-1178
Number of pages24
JournalJournal of Futures Markets
Volume37
Issue number12
DOIs
Publication statusPublished - Dec 2017

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