Abstract
This chapter sets out an extended model used for estimation of the effective bid and ask prices as well as the illiquidity premium. The chapter starts by the introduction of jump models and continues with the positive and negative attributes of these models. The chapter then proceeds with the introduction of Kou model. Afterwards, we calculate the distribution function of the stock price process that follows the Kou model. During the calculation steps, we use Residue Theorem from Complex Analysis and Inversion Formula from the Theory of Inverse Problems for densities.
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