A Solution to Kolmogorov-Feller Equation and Pricing of Options
Ju-Gyong Kim, Il-Su Choe
TL;DR
This paper derives solutions to the Kolmogorov-Feller equation and uses them to develop pricing formulas for options within a jump-diffusion model framework.
Contribution
It introduces a novel approach to option pricing by solving the Kolmogorov-Feller equation specific to jump-diffusion processes.
Findings
Derived explicit solutions to the Kolmogorov-Feller equation.
Provided new option pricing formulas under jump-diffusion models.
Enhanced understanding of option valuation in models with jumps.
Abstract
We study the solution to Kolmogorov-Feller equation and by using it provide pricing formulas of well known some options under jump-diffusion model.
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Taxonomy
TopicsStochastic processes and financial applications · Economic theories and models