The option pricing under double Heston model with jumps

Authors

Department of Applied Mathematics, Faculty of Mathematical Sciences, University of Guilan, Rasht, Iran

Abstract

In this paper, by introducing of the double Heston's stochastic volatility model, since the prices of underlying asset in the financial markets are subject to the abrupt changes caused by different factors, by adding  jump term to the double Heston model, we propose a new financial model, called the double Heston's stochastic volatility model with jumps. Then, by determining the characteristic function of the underlying stock price process, we obtain a formula for the European call option pricing under the proposed model by using the Fast Fourier transform method. Due to existence the jump term in the stock price process, the proposed model can be widely used in the financial markets, such as oil, gold and stock financial markets. Therefore, the model is more flexible than the Heston model and covers the abrupt changes of underlying asset price. The main goal of this paper is to present the model and derive a numerical scheme for the European option pricing.

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References

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Journal of Advanced Mathematical Modeling
Volume 3, Issue 2 - Serial Number 2
November 2014
Pages 45-60

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History

  • Receive Date: 08 July 2014
  • Accept Date: 08 July 2014

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