Option pricing within Heston’s stochastic and stochastic-jump models

摘要

The quest to have a model that will bebetter at approximating market prices and produce fit better than Heston’sStochastic model motivated us to combine jump components to Heston’s Stochasticmodel which we called Heston’s Stochastic-Jump model (HSJ). ?Complete derivation of the Heston’sStochastic-Jump model was presented.Simulation studies were conducted. Pricing performances ofHeston’s Stochastic and Heston’sStochastic-Jump models wereempirically analysed using the NASDAQ index call option price quotations. ?Results show that Heston’s Stochastic-Jumpmodel performed better than Heston’s Stochastic model by about 18% reduction inerror.