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Hard · derivatives · Quant Researcher interview question · jump_diffusion, merton_model, option_pricing, poisson_process, derivatives
The Merton jump-diffusion model enhances the Black-Scholes framework by incorporating a compound Poisson process to account for sudden, discontinuous price jumps. This provides a more realistic model for assets with "fat-tailed" return distributions, expressing the option price as a weighted average of Black-Scholes prices over different jump scenarios. Implementing this model is a key task in pricing derivatives under more complex market dynamics. Task Implement the function merton_jump_call(S