• OpenAccess
  • A Note on the Kou’s Continuity Correction Formula  [AFM 2015]
  • DOI: 10.4236/jss.2015.311005   PP.28 - 34
  • Author(s)
  • Ting Liu, Chang Feng, Yanqiong Lu, Bei Yao
  • This article introduces a hyper-exponential jump diffusion process based on the continuity correction for discrete barrier options under the standard B-S model, using measure transformation and stopping time theory to prove the correction, thus broadening the conditions of the continuity correction of Kou.

  • B-S Model, Discrete Barrier Options, Hyper-Exponential Jump Diffusion, Continuity Correction Formula
  • References
  • [1]
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    Kou, S.G. (2003) On Pricing of Discrete Barrier Options. Statistic Sinica, 13, 955-964.
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    Fuh, C.D., Luo, S.F. and Yen, J.F. (2013) Pricing Discrete Path-Dependent Options under a Double Exponential Jump- Diffusion Model. Journal of Banking & Finance, 37, 2702-2713.
    Kou, S.G. (2002) A Jump-Diffusion Model for Option Pricing. Management Science, 48, 1086-1101.
    Cai, N. (2009) On First Passage Times of a Hyper-Exponential Jump Diffusion Process. Operations Research Letters, 37, 127-134.
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    Zhang, C.H. (1988) A Nonlinear Renewal Theory. Annals of Probability, 6, 93-824.

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