Illustrates an example of jump-diffusion model

Question

Illustrates an example of jump-diffusion model?

Answer 1

A stock follows the lognormal random walk. In each month you roll a dice. As you roll a one so the stock price jumps discontinuously. The size of its jump is decided through a random number you draw from a hat. It is not a great illustration as the Poisson process is a continuous process, not a quarterly event.