Cartea, Alvaro; Howison, Sam - In: Quantitative Finance 9 (2009) 4, pp. 397-409
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...