Refined wing asymptotics for the Merton and Kou jump diffusion models
Volume 104 / 2015
Banach Center Publications 104 (2015), 85-94
MSC: Primary 91G20; Secondary 41A60.
DOI: 10.4064/bc104-0-4
Abstract
Refining previously known estimates, we give large-strike asymptotics for the implied volatility of Merton's and Kou's jump diffusion models. They are deduced from call price approximations by transfer results of Gao and Lee. For the Merton model, we also analyse the density of the underlying and show that it features an interesting “almost power law” tail.
