A note on intraday option pricing. (1st January 2013)

• Record Type: Journal Article
• Authors: Scalas, Enrico; Politi, Mauro
• Is Part Of: International journal of applied nonlinear science. Volume 1:Number 1(2013)
• Page Start: 76
• Page End: 86
• Publication Date: 2013-01-01
• Subjects: option pricing -- high-frequency finance -- high-frequency trading -- computer trading -- jump-diffusion models -- pure-jump models -- continuous-time random walks -- semi-Markov processes; Science -- Mathematical models -- Periodicals; Engineering -- Mathematical models -- Periodicals; Nonlinear theories -- Periodicals; 501.5118
• Languages: English
• ISSNs: 1752-2862

Abstract

Compound renewal processes can be used as an approximate phenomenological model of tick-by-tick price fluctuations. An exact and explicit general formula is derived for the martingale price of a European call option written on a compound renewal process. The option price is obtained using the direct method of indicator functions. The applicability of this result is discussed.