Work

An analytical approximation of European option prices under a hybrid GARCH-Vasicek model with double exponential jump in the bid-ask price economy

Year: 2024

Type: article

Abstract: Conic finance theory, which has been developed over the past decade, replaces classical one-price theory with the bid-ask price economy in option pricing since the one-price principle ignores the bid-ask spread created by market liquidity. Within this framework, we investigate the European option pricing problem when stochastic interest rate, stochastic volatility, and double exponential jump are all taken into account. We show that the corresponding bid and ask prices can be formulated into a semi-analytical form with the Fourier-cosine method once the solution to the characteristic function is obtained. Some interesting properties regarding the new results are displayed via numerical implementation.

Source: AIMS Mathematics

DOI: 10.3934/math.2024579

Authors: Shoude Huang, Xinjiang He, Shuqu Qian

Institutions: Anshun University, Zhejiang University of Technology

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $1,200

Funder: National Natural Science Foundation of China