Option pricing with Levy Process
AbstractIn this paper, we assume that log returns can be modelled by a Levy process. We give explicit formulae for option prices by means of the Fourier transform. We explain how to infer the characteristics of the Levy process from option prices. This enables us to generate an implicit volatility surface implied by market data. This model is of particular interest since it extends the seminal Black Scholes  model consistently with volatility smile.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0212006.
Length: 118 pages
Date of creation: 21 Dec 2002
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Note: Type of Document - PDF; prepared on windows; pages: 118
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Levy process; Fourier and Laplace transform; Smile.;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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