1Chp.9OptionPricingWhenUnderlyingStockReturnsareDiscontinuous2•Inthischapter,anoptionpricingformulaisderivedforthemoregeneralcasewheretheunderlyingstockreturnsaregeneratedbyamixtureofbothcontinuousandjumpprocesses.39.1Introduction•ThecriticalassumptionsintheBlack-Scholesderivationisthattradingtakesplacecontinuouslyintimeandthatthepricedynamicsofthestockhaveacontinuoussamplepathwithprovability...
