Purpose – Option pricing based on Black-Scholes model is typically obtained under the assumption that the volatility of the return is a constant. The purpose of this paper is to develop a new method for pricing derivatives under the jump diffusion model with random volatility by viewing the...

Purpose – Option pricing based on Black-Scholes model is typically obtained under the assumption that the volatility of the return is a constant. The purpose of this paper is to develop a new method for pricing derivatives under the jump diffusion model with random volatility by viewing the...

Purpose – To study stochastic volatility in the pricing of options. Design/methodology/approach – Random-coefficient autoregressive and generalized autoregressive conditional heteroscedastic models are studied. The option-pricing formula is viewed as a moment of a truncated normal...

Purpose – To study stochastic volatility in the pricing of options. Design/methodology/approach – Random‐coefficient autoregressive and generalized autoregressive conditional heteroscedastic models are studied. The option‐pricing formula is viewed as a moment of a truncated normal...

Purpose – Option pricing based on Black‐Scholes model is typically obtained under the assumption that the volatility of the return is a constant. The purpose of this paper is to develop a new method for pricing derivatives under the jump diffusion model with random volatility by viewing the...