Approximating GARCH-Jump Models , Jump-Diffusion Processes , and Option Pricing ∗

@inproceedings{Duan2005ApproximatingGM,
  title={Approximating GARCH-Jump Models , Jump-Diffusion Processes , and Option Pricing ∗},
  author={Jin-Chuan. Duan and Peter H. Ritchken and Zhiqiang Sun},
  year={2005}
}
This paper considers the pricing of options when there are jumps in the pricing kernel and correlated jumps in asset prices and volatilities. We extend theory developed by Nelson (1990) and Duan (1997) by considering limiting models for our resulting approximating GARCH-Jump process. Limiting cases of our processes consist of models where both asset price and local volatility follow jump diffusion processes with correlated jump sizes. Convergence of a few GARCH models to their continuous time… CONTINUE READING
Highly Cited
This paper has 24 citations. REVIEW CITATIONS