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Options Pricing in Jump Diffusion Markets during Financial Crisis |
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PP: 2319-2326 |
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Author(s) |
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Youssef El-Khatib,
Mohamed Ali Hajji,
Mohammed Al-Refai,
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Abstract |
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In this paper, we suggest a jump diffusion model in markets during financial crisis. Using risk-neutral pricing, we derive a
partial differential equation (P.D.E.) for the prices of European options. We find a closed form solution of the P.D.E. in the particular
case where the stock price is too large. Then, we use such a solution as a boundary condition in the numerical treatment of the P.D.E.
for any range of stock price. The numerical method adopted is the unconditionally stable Crank-Nicolson method. Illustrative examples
are presented. |
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