Pricing turbo warrants under mixed-exponential jump diffusion model

• Analytical pricing formula of turbo warrant under mixed-exponential jump diffusion model is derived.
• Numerical Laplace inversion examples are provided based on the extended Euler method.
• The performance of inversion results are evaluated via comparing with the prices from Monte Carlo simulation.
• The numerical simulation confirms that jump risk should not be ignored in the valuation of turbo warrants.

Turbo warrant is a special type of barrier options in which the rebate is calculated as another exotic option. In this paper, using Laplace transforms we obtain the valuation of turbo warrant under the mixed-exponential jump diffusion model, which is able to approximate any jump size distribution. The numerical Laplace inversion examples verify that the analytical solutions are accurate. The results of simulation confirm the argument that jump risk should not be ignored in the valuation of turbo warrants.