Advanced Search
MyIDEAS: Login to save this paper or follow this series

A short note on option pricing with Lévy Processes

Contents:

Author Info

  • Dominique Guegan

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Hanjarivo Lalaharison

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

Abstract

In this paper, we provide exact formulas for the pricing of European options under the risk neutral measure, whereas under the historic measure the data follow two types of models : a GARCH process with Lévy innovations, or a GARCH process with Poisson jumps. This approach aims to take realistic account of the jumps that are observed in the markets and to introduce them into the theory of pricing in incomplete markets. We assume that the "pricing kenel" that can move from measurement historical risk-neutral measure can be obtained from the Esscher transform (Siu et al., 1994), or using the MEMM transformation introduced by Elliott and Madam (1998). We show how these two types of "pricing kernels" impact on the options prices and through an example we quantify the difference.

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://halshs.archives-ouvertes.fr/docs/00/54/24/75/PDF/10078.pdf
Download Restriction: no

Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00542475.

as in new window
Length:
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:hal:cesptp:halshs-00542475

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00542475
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: Lévy processes; pricing; incomplet markets; risk neutral measure.;

Other versions of this item:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

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:hal:cesptp:halshs-00542475. 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: (CCSD).

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.