Theoretical Statistics and Mathematics Unit, ISI Delhi

October 11, 2017 (Wednesday) ,
3:30 PM at Webinar

Speaker:
Francine Diener,
Laboratoire Jean Dieudonné, University of Nice, France

Title:
How to fit a jump diffusion model to return prices?

Abstract of Talk

In 1976, R. C. Merton extended the classical (continuous) \textit{Black-Scholes model} for return prices to models known as \textit{jump diffusion models} for which the return prices have large jumps intersperced with small continuous movements. Useful, for example, for commodity prices, especially when they are not very liquid, their main disadvantage is that it is not easy to calibrate the parameters of the model to existing data. Indeed introduction of jumps adds three extra parameters, $\lambda$, $m$ and $s$ to the original Black-Scholes ones, $\mu$ and $\sigma$.

In this talk, we introduce a new method to estimate the three jump-parameters and show how to do on an example of rubber return prices on the Thai market.