On exact pricing of FX options in multivariate time-changed Lévy models

Roman V. Ivanov () and Katsunori Ano ()
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Roman V. Ivanov: Trapeznikov Institute of Control Sciences of RAS
Katsunori Ano: Shibaura Institute of Technology

Review of Derivatives Research, 2016, vol. 19, issue 3, No 2, 216 pages

Abstract: Abstract In this paper we discuss foreign-exchange option pricing in conditionally Gaussian models, namely in the variance-gamma and in the normal-inverse Gaussian models. It happens that in the both models closed-form pricing is attainable. The used method developes the one of the work by Madan et al. (Eur Finance Rev 2:79–105, 1998) where the price of the European call is primarily derived. The obtained formulas are based on values of the Gauss and the Appell hypergeometric functions.

Keywords: Time-changed Lévy process; Variance-gamma process; Normal-inverse Gaussian process; Foreign-exchange option; Pricing; Hypergeometric function (search for similar items in EconPapers)
JEL-codes: C02 D53 G13 G15 G21 G23 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11147-016-9120-4

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