creator Fang, Hui Classical option pricing schemes have an ideal assumption that a single interest rate is used as risk free discounting rate. This assumption has been already relaxed due to deteriorating credit market. In this paper, we assume that risk free lending and borrowing rates are di erent. Under di erential interest rates setup, a no-arbitrage price band rather than a unique price is calculated. We extend this scheme to a jump di usion model. Under mild conditions, option prices can be calculated explicitly. We illustrate the pricing scheme through a European style call option. Numerical results show that funding spread between lending and borrowing interest rates has signi cant impact on the length of the option's no-arbitrage price band. Submitted by Liana Khananashvili (khananashvili@iit.edu) on 2014-12-15T19:25:41Z No. of bitstreams: 2 Option Pricing and Hedging under Jump Diffusion Model with Differential Interest Rates July_2014.pdf: 235657 bytes, checksum: 526e41f4d9c4341e7f1dcfc61bf1fbf1 (MD5) Signed Title Page.pdf: 233101 bytes, checksum: f7240a63e68f19119387e6d9becb0487 (MD5) Made available in DSpace on 2014-12-15T19:25:41Z (GMT). No. of bitstreams: 2 Option Pricing and Hedging under Jump Diffusion Model with Differential Interest Rates July_2014.pdf: 235657 bytes, checksum: 526e41f4d9c4341e7f1dcfc61bf1fbf1 (MD5) Signed Title Page.pdf: 233101 bytes, checksum: f7240a63e68f19119387e6d9becb0487 (MD5) Previous issue date: 2014-07 M.S. in Applied Mathematics, July 2014 2014 2014-07 http://hdl.handle.net/10560/3355 en Thesis born digital application/pdf In Copyright http://rightsstatements.org/page/InC/1.0/ Restricted Access MATH / Applied Mathematics Illinois Institute of Technology Affiliated department