Option Pricing with Lévy-Stable Processes Generated by Lévy-Stable Integrated Variance
We show how to calculate European-style option prices when the log-stock price process follows a Levy-Stable process with index parameter 1 ≤ α ≤ 2 and skewness parameter -1 ≤ β ≤ 1. Key to our result is to model integrated variance [image omitted] as an increasing Levy-Stable process with continuous paths in T.
(This abstract was borrowed from another version of this item.)
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- Elisa Nicolato & Emmanouil Venardos, 2003. "Option Pricing in Stochastic Volatility Models of the Ornstein-Uhlenbeck type," Mathematical Finance, Wiley Blackwell, vol. 13(4), pages 445-466.
- Peter Carr & Liuren Wu, 2003.
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- Peter Carr & Liuren Wu, 2002. "The Finite Moment Log Stable Process and Option Pricing," Finance 0207012, EconWPA.
- Alvaro Cartea & Sam Howison, 2002. "Distinguished Limits of Levy-Stable Processes, and Applications to Option Pricing," OFRC Working Papers Series 2002mf04, Oxford Financial Research Centre.
- Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
- Fama, Eugene F, 1971. "Risk, Return, and Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 79(1), pages 30-55, Jan.-Feb..
- Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
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