Pricing Volatility Options in the Presence of Jumps
نویسنده
چکیده
Motivated by the growing literature on volatility options and their imminent introduction in major exchanges, this paper proposes a new model that prices option contracts on volatility. To the best of our knowledge, the impact of volatility jumps in the valuation of volatility options has not yet been studied. The objective of this paper is to fill in this gap in the volatility derivatives literature. The model is based on a mean reverting Gaussian process with jumps for the underlying asset. JEL Classification: G11, G12, G13.
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