This chapter extends option pricing beyond the continuous paths of classical diffusion models by incorporating jumps into the asset price dynamics. Real-world markets often exhibit sudden price movements—due to earnings announcements, macroeconomic shocks, or unexpected events—that cannot be captured by standard geometric Brownian motion (GBM). Jump-diffusion models combine diffusion with Poisson-driven jumps, providing a richer framework for realistic asset modeling and option pricing.

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Geometric Brownian Motion and Jump-Diffusion Models

  • Aaron De la Rosa

摘要

This chapter extends option pricing beyond the continuous paths of classical diffusion models by incorporating jumps into the asset price dynamics. Real-world markets often exhibit sudden price movements—due to earnings announcements, macroeconomic shocks, or unexpected events—that cannot be captured by standard geometric Brownian motion (GBM). Jump-diffusion models combine diffusion with Poisson-driven jumps, providing a richer framework for realistic asset modeling and option pricing.