A series solution of Black-Scholes equation under jump diffusion model

Kyoung Sook Moon, Hongjoong Kim, Yunju Jeong

Research output: Contribution to journalArticle

Abstract

We introduce a series solution for a partial integro-differential equation which arises in option pricing when the Black-Scholes partial differential equations are considered under jump diffusion models. We construct a polynomial chaos solution using the Taylor expansion with respect to Hermite polynomials, which simplifies the integral term and derives a system of deterministic ordinary differential equations. Numerical examples show that the proposed method efficiently gives the desired accuracy for pricing options.

Original languageEnglish
JournalEconomic Computation and Economic Cybernetics Studies and Research
Volume48
Issue number1
Publication statusPublished - 2014 Jan 1

Fingerprint

Jump-diffusion Model
Black-Scholes Equation
Series Solution
Option Pricing
Polynomials
Partial Integro-differential Equation
Polynomial Chaos
Black-Scholes
Integrodifferential equations
Hermite Polynomials
Taylor Expansion
Ordinary differential equations
Chaos theory
Partial differential equations
Costs
Simplify
Ordinary differential equation
Partial differential equation
Numerical Examples
Term

ASJC Scopus subject areas

  • Economics and Econometrics
  • Computer Science Applications
  • Applied Mathematics

Cite this

A series solution of Black-Scholes equation under jump diffusion model. / Moon, Kyoung Sook; Kim, Hongjoong; Jeong, Yunju.

In: Economic Computation and Economic Cybernetics Studies and Research, Vol. 48, No. 1, 01.01.2014.

Research output: Contribution to journalArticle

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