Study on European put option pricing with underlying asset zero-coupon bond and interest rate following the Vasicek model with jump

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Abstract

This paper examines the price of European put options with underlying asset zero-coupon bond and the interest rate that satisfied the Vasicek model with jump. The study was conducted by reconstructing the European put option pricing equation. The jump size is defined following a mixed-exponential distribution. By utilizing infinitesimal generator and martingale concepts, Laplace transform is constructed for the distribution of the Vasicek model with jump. Then, using the results of the Laplace transform for the distribution of the Vasicek model with jump and the concept of equivalent martingale measure, the European put option pricing equation with underlying asset zero-coupon bond is constructed.

Original languageEnglish
Article number012092
JournalJournal of Physics: Conference Series
Volume1725
Issue number1
DOIs
Publication statusPublished - 12 Jan 2021
Event2nd Basic and Applied Sciences Interdisciplinary Conference 2018, BASIC 2018 - Depok, Indonesia
Duration: 3 Aug 20184 Aug 2018

Keywords

  • Equivalent martingale measure
  • European put option
  • Laplace transform
  • Vasicek model with jump
  • Zero-coupon bond

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