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Option Pricing Under the Variance Gamma Process

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  • Fiorani, Filo

Abstract

In this dissertation we price European and American vanilla and barrier options assuming that the underlying follows the variance gamma process. We solve numerically the problem implementing a finite difference algorithm and we present numerical experiments on the option pricing. This dissertation includes detailed algorithms as well as programming code in C++ to price European and American vanilla and barrier options under variance gamma.

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File URL: http://mpra.ub.uni-muenchen.de/15395/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15395.

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Date of creation: Apr 2004
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Handle: RePEc:pra:mprapa:15395

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Related research

Keywords: Variance Gamma Process; Option Pricing Under Variance Gamma; Numerical Solution of Option Prices Under Variance Gamma; Numerical Solution of Variance Gamma PIDE; Numerical Solutions of Variance Gamma Partial Differential Equation; Programming Code for Variance Gamma Option Pricing;

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References

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  1. Peter Carr & Liuren Wu, 2002. "Time-Changed Levy Processes and Option Pricing," Finance 0207011, EconWPA.
  2. Geman, Hélyette & Carr, Peter & Madan, Dilip B. & Yor, Marc, 2003. "Stochastic Volatility for Levy Processes," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/1392, Université Paris-Dauphine.
  3. Dilip B. Madan & Frank Milne, 1991. "Option Pricing With V. G. Martingale Components," Mathematical Finance, Wiley Blackwell, vol. 1(4), pages 39-55.
  4. Geman, Helyette, 2002. "Pure jump Levy processes for asset price modelling," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1297-1316, July.
  5. Peter Carr & Helyette Geman, 2002. "The Fine Structure of Asset Returns: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 75(2), pages 305-332, April.
  6. Thierry Ané & Hélyette Geman, 2000. "Order Flow, Transaction Clock, and Normality of Asset Returns," Journal of Finance, American Finance Association, vol. 55(5), pages 2259-2284, October.
  7. Lam, K. & Chang, E. & Lee, M. C., 2002. "An empirical test of the variance gamma option pricing model," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 267-285, June.
  8. Madan, Dilip B & Seneta, Eugene, 1990. "The Variance Gamma (V.G.) Model for Share Market Returns," The Journal of Business, University of Chicago Press, vol. 63(4), pages 511-24, October.
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Cited by:
  1. Filippo Fiorani & Elisa Luciano, 2006. "Credit risk in pure jump structural models," ICER Working Papers - Applied Mathematics Series 6-2006, ICER - International Centre for Economic Research.

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