MIXED LOGNORMAL DISTRIBUTIONS FOR DERIVATIVES PRICING

摘要

Many derivatives prices are closed-form expressions in the Black-Scholes model; when the terminal distribution is a mixed lognormal, prices for these derivatives are then a weighted average of these (closed-form) expressions. They can therefore be calculated easily and efficiently for mixed lognormal distributions. For illustration this paper constructs mixed lognormal distributions that approximate the terminal distribution in the Merton model (Black-Scholes model with jumps).