European Option Pricing in Fractional Jump Diffusion Markets

Abstract

Previous option pricing research typically assumes that the stock volatility is constant during the life of the option. In this study, we assume the stock volatility in our option valuation model is function of time and stock price. The stock price Process numerically is simulated by using the Monte Carlo method. Then, the numerical option pricing method for European option is hold. Finally, we compare our results with the known results in the linear case, the results show that our method is effective.