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.
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- Peter Carr & Liuren Wu, 2003.
"The Finite Moment Log Stable Process and Option Pricing,"
Journal of Finance,
American Finance Association, vol. 58(2), pages 753-778, April.
- Peter Carr & Liuren Wu, 2002. "The Finite Moment Log Stable Process and Option Pricing," Finance 0207012, EconWPA.
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- Fama, Eugene F, 1971. "Risk, Return, and Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 79(1), pages 30-55, Jan.-Feb.. Full references (including those not matched with items on IDEAS)
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