A Parsimonious Model for Intraday European Option Pricing

Scalas, Enrico; Politi, Mauro

doi:10.2139/ssrn.2007737

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A Parsimonious Model for Intraday European Option Pricing

Economics Discussion Paper No. 2012-14

14 Pages Posted: 20 Feb 2012

See all articles by Enrico Scalas

Mauro Politi

International Christian University; Ecole Centrale Paris

Date Written: 2012

Abstract

A stochastic model for pure-jump diffusion (the compound renewal process) can be used as a zero-order approximation and as a phenomenological description of tick-by-tick price fluctuations. This leads to an exact and explicit general formula for the martingale price of a European call option. A complete derivation of this result is presented by means of elementary probabilistic tools.

Keywords: Option pricing, high-frequency finance, high-frequency trading, computer trading, jump-diffusion models, pure-jump models, continuous time random walks, semi-Markov processes

JEL Classification: G13

Suggested Citation: Suggested Citation

Scalas, Enrico and Politi, Mauro and Politi, Mauro, A Parsimonious Model for Intraday European Option Pricing (2012). Economics Discussion Paper No. 2012-14, Available at SSRN: https://ssrn.com/abstract=2007737 or http://dx.doi.org/10.2139/ssrn.2007737