Merton76_Model

dS = (α-λk)Sdt + σSdB + JSdN

where

α = the asset's risk-free rate of return

N is a poisson process with a constant intensity λ

B is a Brownian motion

σ = constant interpreted as the volatility of the non-jump part of the process

J is a random variable representing the relative jump size ΔS/S := (S'-S)/S, where S' is the underlying price right after a jump, is distributed in such a way that the logarithm of the "jump factor" S'/S = 1+J is normally distributed.

Formally: log(1+J) ~ N(μ,δ²)

where N(μ,δ²) denotes the standard normal distribution with mean μ and standard deviation δ. Web reference available here