Double Exponential Jump Diffusion Model: An Empirical Assessment for the Turkish Stock Market

Özge Sezgin-Alp


In continuous time option pricing and portfolio optimization problems generally Geometric Brownian Motion risky asset dynamic is used. However, normality of risky asset returns is not always supported by empirical studies.  In empirical studies it is seen that asymmetric leptokurtic feature and the volatility smile are observed in emerging market asset returns. For this purpose, in this paper the applicability of Kou’s Double Exponential Jump Diffusion model to İstanbul Stock Exchange main index ISE100 is investigated. The results are compared with Geometric Brownian Motion price dynamic. It is seen that Kou’s model perform better to capture the leptokurtic property of returns.

Key Words: Double Exponential Jump Diffusion Model, Geometric Brownian Motion, Empirical Characteristic Exponent

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ISSN (Paper)2222-1697 ISSN (Online)2222-2847

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