Option pricing with Levy Process

Eric Benhamou ()

Finance from EconWPA

Abstract: In this paper, we assume that log returns can be modelled by a Levy process. We give explicit formulae for option prices by means of the Fourier transform. We explain how to infer the characteristics of the Levy process from option prices. This enables us to generate an implicit volatility surface implied by market data. This model is of particular interest since it extends the seminal Black Scholes [1973] model consistently with volatility smile.

Keywords: Levy process; Fourier and Laplace transform; Smile. (search for similar items in EconPapers)
JEL-codes: G13 G12 (search for similar items in EconPapers)
Date: 2002-12-21
Note: Type of Document - PDF; prepared on windows; pages: 118
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0212006

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