Closed formulas for the price and sensitivities of European options under a double exponential jump diffusion model

Subject Areas : International Journal of Finance, Accounting and Economics Studies

Received: 2010-11-23 Accepted : 2011-01-05 Published : 2011-01-20

Keywords: Options, Sensitivities, Jump diffusion models,

Abstract :

We derive closed formulas for the prices of European options andtheir sensitivities when the underlying asset follows a double-exponentialjump diffusion model, as considered by S. Kou in 2002. This author hasderived the option price by making use of double series where each termrequires the computation of a sequence of special functions, such thatthe implementation remains difficult for a large part of financial users. Ourpresent result provides an alternative to the Kou's formula easily toimplement, even for the Excel/VBA environment.