Analytical Aproach to Value Options with State Variables of a Levy System
AbstractIn this paper we discuss an analytical method in pricing contingent claims of European style on the assets, whose state variables follow a multi-dimensional Levy process. We give explicit formulae for the hypothetical ``two-price'' contingent claim prices by means of the conditional characteristic transforms. The work not only unifies and extends the option pricing literature, which focuses on the use of the characteristic function, but also provides the way to formalize and unify the valuation of the contingent claim price, the valuation of the discount bond price, the valuation of the scaled-forward price, and determining the pricing measures in incomplete markets.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0207004.
Length: 36 pages
Date of creation: 16 Aug 2002
Date of revision: 19 Nov 2002
Note: Type of Document - TeX/PDF; prepared on PC-TEX; pages: 36
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Levy Process; Option Pricing; Characteristic Function; Analitical Method; Fourier transform;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-08-19 (All new papers)
- NEP-ETS-2002-08-19 (Econometric Time Series)
- NEP-FIN-2002-08-19 (Finance)
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