Analytical Aproach to Value Options with State Variables of a Levy System
In 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.
|Date of creation:||16 Aug 2002|
|Date of revision:||19 Jan 2003|
|Note:||Type of Document - TeX/PDF; prepared on PC-TEX; pages: 36|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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