We derive a closed-form formula for the fair value of call and put options written on the arithmetic average of security prices driven by jump diffusion processes displaying (possibly periodical) trend, time varying volatility, and mean reversion. The model allows one for jointly fitting quoted...

Options on crude oil futures are the most actively traded commodity options. We develop a class of computationally efficient discrete-time jump models that allow for closed-form option valuation, and we use crude oil futures and options data to investigate the economic importance of jumps and...

Jump risk plays an important role in current financial markets, yet it is a risk that cannot be easily measured and hedged. We numerically evaluate American call options under stochastic volatility, stochastic interest rates and jumps in both the asset price and volatility. By employing the...

Exact probability density functions were derived for the discretely and continuously monitored arithmetic average prices when asset returns follow a normal distribution. They were calculated by a one-step time convolution to maturity, normalized by Esscher transform. They are of an...

In this paper, we propose a new stochastic simulation-based methodology for pricing discretely-monitored double barrier options and estimating the corresponding probabilities of execution. We develop our framework by employing a versatile tool for the estimation of rare event probabilities known...

We introduce a natural generalization of the forward-starting options, first discussed by M. Rubinstein [Rubin]. The main feature of the contract presented here is that the strike-determination time is not fixed ex-ante, but allowed to be random, usually related to the occurrence of some event,...

This paper surveys the literature that deals with the informational content of market option prices for the purposes of quantitative asset management. We review studies that have investigated whether market option prices may help a portfolio manager in the stock selection process, portfolio...

We provide first-time evidence of the real-time characteristics and drivers of jumps in option prices. To this end, we employ high-frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are...

The present article provides an efficient and accurate hybrid method to price American standard options in certain jump-diffusion models as well as American barrier-type options under the Black & Scholes framework. Our method generalizes the quadratic approximation scheme of Barone-Adesi &...

A risk-neutral probability distribution (RND) for future S&P 500 returns extracted from index options contains investors' true expectations and also their risk preferences. But the empirical pricing kernel that emerges in a representative agent framework, which suppresses investor differences,...