by LUPU, Radu
Published in Romanian Journal of Economic Forecasting, volume 7 issue 2, 2006.
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This paper addresses the problem of option bounds computation under the assumption that the price of the underlying asset follows a jump-diffusion Merton process as formulated in Perrakis (1993) extending the number of the jumps from one jump up and one jump down with fixed sizes to a finite number of jumps with sizes drawn from the lognormal distribution. The objective of this paper is to create a Monte Carlo simulation for the estimation of the bounds with various numbers of jumps and periods to maturity.
Monte Carlo simulation, Jump-Diffusion processes, multi-jump process
JEL Classification: C15, G12