A parsimonious model for intraday European option pricing
Wed, 22 Feb 2012 06:39:36 GMT
A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit gener 645 al formula for the martingale price of a European call option. A complete derivation of this result is presented by means of elementary probabilistic tools.
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