R. Sen: Modeling the Stock Price Process as a Continuous Time Jump Process

June 19, 2004

An important aspect of the stock price process, which has of ten been ignored in the nancial literature, is that prices on organized exchanges are restricted to a grid. We consider continuous-time models for the stock price process with random waiting times of jumps and discrete jump size. We consider a class of jump processes that are close “to the Black-Scholes model in the sense that as the jump size goes to zero, the jump model converges to geometric Brownianmotion.