Multinomial method for option pricing under Variance Gamma
Pricing of Securities
2021-06-18 v4 Computational Finance
Mathematical Finance
Abstract
This paper presents a multinomial method for option pricing when the underlying asset follows an exponential Variance Gamma process. The continuous time Variance Gamma process is approximated by a discrete time Markov chain with the same firsts four cumulants. This approach is particularly convenient for pricing American and Bermudan options, which can be exercised at any time up to expiration date. Numerical computations of European and American options are presented, and compared with results obtained with finite differences methods and with the Black Scholes model.
Keywords
Cite
@article{arxiv.1701.00112,
title = {Multinomial method for option pricing under Variance Gamma},
author = {Nicola Cantarutti and João Guerra},
journal= {arXiv preprint arXiv:1701.00112},
year = {2021}
}