In this paper, we determine the lowest cost strategy for a given payoff in Lévy markets where the pricing is based on the Esscher martingale measure. In particular, we consider Lévy models where prices are driven by a normal inverse Gaussian (NIG)- or a variance Gamma (VG)-process. Explicit...

There is good empirical evidence to show that the financial series, whether stocks or indices, currencies or interest rates do not follow the log-normal random walk underlying the Black-Scholes model, which is the basis for most of the theory of options valuation. This article presents a...

We consider the valuation of European quanto call options in an incomplete market where the domestic and foreign forward interest rates are allowed to exhibit regime shifts under the Heath–Jarrow–Morton (HJM) framework, and the foreign price dynamics is exogenously driven by a regime...

We investigate exponential stock models driven by tempered stable processes, which constitute a rich family of purely discontinuous Lévy processes. With a view of option pricing, we provide a systematic analysis of the existence of equivalent martingale measures, under which the model remains...