Câmara, António; Heston, Steven L. - In: Journal of Futures Markets 28 (2008) 3, pp. 213-230
This paper explores the effect of extreme events or big jumps downwards and upwards on the jump‐diffusion option pricing model of Merton (1976). It starts by obtaining a special case of the jump‐diffusion model where there is a positive probability of a big jump downwards. Then, it obtains a...