Option pricing via QUAD: From Black-Scholes-Merton to heston with jumps

The fastest, most generally applicable and flexible numerical derivatives pricing techniques fall under the umbrella of the QUAD method. There remains an important area of pricing to which QUAD has yet to be applied. The authors correct that omission here, showing how to approach a practical successor to plain Black-Scholes modeling, the Heston model combined with Merton jump diffusion. This method, although not perfect, incorporates stochastic volatility and price jumps, both of which are prominent features of real world returns. The authors take the reader from the simplest cases through to American options on an underlying following Heston stochastic volatility combined with a Merton jump-diffusion process.