I introduce Poisson Scale Mixture (PSM) distribution and develop a process based on this distribution. Option pricing model under the process is developed to incorporate the asymmetry of information and the corresponding implied volatility surface is numerically investigated. This model provides a good fit to observed option prices. To demonstrate the advantage of the new process, I conduct empirical studies to compare its performance to other processes that have been used in the literature.
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josephbak/poisson-scale-model
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