Premium
PRICING CURRENCY FUTURES OPTIONS WITH LOGNORMALLY DISTRIBUTED JUMPS
Author(s) -
Tucker Alan L.,
Madura Jeff,
Marshall John F.
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00352.x
Subject(s) - futures contract , currency , jump diffusion , economics , jump , financial economics , econometrics , valuation of options , monetary economics , physics , quantum mechanics
We find that a mixed diffusion‐jump process fits most daily currency futures price series better than a mixture of normal densities and, especially, an asymmetric stable Paretian model. We also find that Merton's (1976) mixed diffusion‐jump option pricing model outperforms Black's (1 976) model for valuing currency futures options. Our results suggest that researchers should begin to consider the possibility of jump processes as time‐independent models of other futures price series.