C (Xi, t) = exp (-ifT ) (XTL(a*, ß*; ST) + (1 - X T)L(a*2,ß*2; ST))(ST - Xi)dST

19 For instance, Bliss and Panigirtzoglou (2000) conclude that a smile interpolation method dominates the log-normal mixture technique in what concerns the stability of the results vis-a-vis measurement errors in option prices.

20 As the US dollar/euro exchange rate is under analysis, the assumption of existing no more than one jump during the lifetime of the option is reasonable.

P(Xi,T) = exp (—if t) I (XTL(a1 ß; ST) + (1 — Xt)L(^, ß|; ST))(Xi — ST)dST

= exp (—if t)Xt exp iln(Xi) — a1 +XiN ——^-!■

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