Actuaries value insurance claim accumulations using a compound Poisson process to capture the random, discrete, and clustered nature of claim arrival, but the standard Black (1976) formula for pricing futures options assumes that the underlying futures price follows a pure diffusion. Extant jump-diffusion option valuation models either assume diversifiable jump risk or resort to equilibrium arguments to account for jump risk premiums. We propose a novel randomized operational time approach to price options in information-time. The time change transforms a compound Poisson process to a more trackable pure diffusion and leads to a parsimonious option pricing formula as a risk-neutral Poisson sum of Black's prices in information-time with only two unobservable variables-the information arrival intensity and the information-time futures volatility.
