Abstract

In practical applications, there is the phenomenon of volatility smirk in Classic B–S option pricing formula. In order to eliminate this phenomenon, we add an independent compound Poisson process to geometric Brownian motion, and get the corresponding option price formula. This article has done two tasks: Firstly, we estimate the volatility of classic B–S option pricing formula with stock and warrant market data, and find that volatility smirk is obvious. Secondly, we estimate the volatility of our option pricing formula with stock and warrant market data, and find that our pricing formula eliminates the smirk, and is better than classical B–S formula.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.