jump diffusion pricing models — brief discussion

I asked a relatively young quant I respect.

She said most sell side models do not have jump feature. The most advanced models tend to be stochastic vol. A simpler model is the local vol model.

I said the Poisson jump model is well-regarded – but she said it’s not that mature.

I said the Poisson jump model is needed since a stock price often exhibits jumps – but her answer gave me the impression that a model without this “indispensable” feature can be good enough in practice.

When you actually put the jump model into practice, it may not work better than a no-jump model. This is reality vs theory.

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