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Barrier style contracts under Lévy processes: An alternative approach

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  • Fajardo, José

Abstract

In this paper we present new pricing formulas for some single barrier style contracts of the European type when the underlying process is driven by an important class of Lévy processes, which includes the CGMY model, generalized hyperbolic model and Meixner model, frequently used in the literature. To achieve this goal we first assume that a symmetry property holds, i.e., we assume that under a change of numéraire the risk neutral distribution does not change, and then we analyze the most realistic asymmetric case.

Suggested Citation

  • Fajardo, José, 2015. "Barrier style contracts under Lévy processes: An alternative approach," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 179-187.
    • Handle: RePEc:eee:jbfina:v:53:y:2015:i:c:p:179-187
    DOI: 10.1016/j.jbankfin.2015.01.002
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    References listed on IDEAS

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    12. Fajardo, José & Farias, Aquiles, 2010. "Derivative pricing using multivariate affine generalized hyperbolic distributions," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1607-1617, July.
    13. Soeren Asmussen & Dilip Madan & Martijn Pistorius, 2007. "Pricing Equity Default Swaps under an approximation to the CGMY L\'{e}% vy Model," Papers 0711.2807, arXiv.org.
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    16. Fajardo, José & Mordecki, Ernesto, 2010. "Market symmetry in time-changed Brownian models," Finance Research Letters, Elsevier, vol. 7(1), pages 53-59, March.
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    Cited by:

    1. José Fajardo, 2017. "A new factor to explain implied volatility smirk," Applied Economics, Taylor & Francis Journals, vol. 49(40), pages 4026-4034, August.
    2. Xiao, Shuang & Ma, Shihua, 2016. "Pricing discrete double barrier options under Lévy processes: An extension of the method by Milev and Tagliani," Finance Research Letters, Elsevier, vol. 19(C), pages 67-74.
    3. Fajardo, José, 2016. "Power Style Contracts Under Asymmetric Lévy Processes," MPRA Paper 71813, University Library of Munich, Germany.
    4. José Fajardo, 2018. "Barrier style contracts under Lévy processes once again," Annals of Finance, Springer, vol. 14(1), pages 93-103, February.

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    More about this item

    Keywords

    Barrier contracts; Lévy processes; Symmetry;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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