Advanced Search
MyIDEAS: Login

Option calibration of exponential L\'evy models: Confidence intervals and empirical results

Contents:

Author Info

  • Jakob S\"ohl
  • Mathias Trabs
Registered author(s):

    Abstract

    Observing prices of European put and call options, we calibrate exponential L\'evy models nonparametrically. We discuss the efficient implementation of the spectral estimation procedures for L\'evy models of finite jump activity as well as for self-decomposable L\'evy models. Based on finite sample variances, confidence intervals are constructed for the volatility, for the drift and, pointwise, for the jump density. As demonstrated by simulations, these intervals perform well in terms of size and coverage probabilities. We compare the performance of the procedures for finite and infinite jump activity based on options on the German DAX index and find that both methods achieve good calibration results. The stability of the finite activity model is studied when the option prices are observed in a sequence of trading days.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1202.5983
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1202.5983.

    as in new window
    Length:
    Date of creation: Feb 2012
    Date of revision: Oct 2012
    Handle: RePEc:arx:papers:1202.5983

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Rama Cont, 2006. "Model uncertainty and its impact on the pricing of derivative instruments," Post-Print halshs-00002695, HAL.
    2. Denis Belomestny & Markus Reiß, 2006. "Spectral calibration of exponential Lévy Models [2]," SFB 649 Discussion Papers SFB649DP2006-035, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Denis Belomestny & Markus Reiß, 2006. "Spectral calibration of exponential Lévy Models [1]," SFB 649 Discussion Papers SFB649DP2006-034, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Eberlein, Ernst & Keller, Ulrich & Prause, Karsten, 1998. "New Insights into Smile, Mispricing, and Value at Risk: The Hyperbolic Model," The Journal of Business, University of Chicago Press, vol. 71(3), pages 371-405, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Jakob S\"ohl, 2012. "Confidence sets in nonparametric calibration of exponential L\'evy models," Papers 1202.6611, arXiv.org, revised Sep 2013.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1202.5983. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.