Option pricing with Levy Process

In 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 [1973] model consistently with volatility smile.

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Year of publication:	2002-12-21
Authors:	Benhamou, Eric
Institutions:	EconWPA
Subject:	Levy process \| Fourier and Laplace transform \| Smile

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Extent:	application/pdf
Series:	Finance.
Type of publication:	Book / Working Paper
Notes:	Type of Document - PDF; prepared on windows; pages: 118 118 pages
Classification:	G13 - Contingent Pricing; Futures Pricing ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005125062