Option pricing with Levy-Stable processes generated by Levy-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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Year of publication:	2009
Authors:	Cartea, Alvaro ; Howison, Sam
Published in:	Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 9.2009, 4, p. 397-409
Publisher:	Taylor & Francis Journals
Subject:	Commodity markets \| Commodity prices \| Levy process \| Hedging techniques

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004966874