Option Pricing for Symmetric L\'evy Returns with Applications
Pricing of Securities
2014-02-10 v1 Probability
Abstract
This paper considers options pricing when the assumption of normality is replaced with that of the symmetry of the underlying distribution. Such a market affords many equivalent martingale measures (EMM). However we argue (as in the discrete-time setting of Klebaner and Landsman, 2007) that an EMM that keeps distributions within the same family is a "natural" choice. We obtain Black-Scholes type option pricing formulae for symmetric Variance-Gamma and symmetric Normal Inverse Gaussian models.
Keywords
Cite
@article{arxiv.1402.1554,
title = {Option Pricing for Symmetric L\'evy Returns with Applications},
author = {Kais Hamza and Fima C. Klebaner and Zinoviy Landsman and Ying-Oon Tan},
journal= {arXiv preprint arXiv:1402.1554},
year = {2014}
}