Option Pricing for Symmetric Lévy Returns with Applications

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 in Methodology and C...

Full description

Saved in:
Bibliographic Details
Published inAsia-Pacific financial markets Vol. 22; no. 1; pp. 27 - 52
Main Authors Hamza, Kais, Klebaner, Fima C., Landsman, Zinoviy, Tan, Ying-Oon
Format Journal Article
LanguageEnglish
Published Tokyo Springer Japan 01.03.2015
Springer Nature B.V
Subjects
Arbitrage
Brownian motion
Econometrics
Economic Theory/Quantitative Economics/Mathematical Methods
Economics and Finance
Entropy
Finance
International Economics
Macroeconomics/Monetary Economics//Financial Economics
Options trading
Random variables
Securities industry
Securities prices
Stock prices
Studies
Symmetry
Equivalent martingale measure
60E99
Option pricing
60G51
91B24
Risk-neutral pricing
Lévy processes
Symmetric distribution
Variance Gamma process
Normal Inverse Gaussian process
Online AccessGet full text
ISSN1387-2834
1573-6946
DOI10.1007/s10690-014-9192-9

Cover

More Information
Summary: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 in Methodology and Computing in Applied Probability, 2007 , doi: 10.1007/s11009-007-9038-2 ) 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.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:1387-2834
1573-6946
DOI:10.1007/s10690-014-9192-9