Exponential stock models driven by tempered stable processes

Uwe Küchler and Stefan Tappe

Journal of Econometrics, 2014, vol. 181, issue 1, 53-63

Abstract: We investigate exponential stock models driven by tempered stable processes, which constitute a rich family of purely discontinuous Lévy processes. With a view of option pricing, we provide a systematic analysis of the existence of equivalent martingale measures, under which the model remains analytically tractable. This includes the existence of Esscher martingale measures and martingale measures having minimal distance to the physical probability measure. Moreover, we provide pricing formulae for European call options and perform a case study.

Keywords: Exponential stock model; Tempered stable process; Bilateral Esscher transform; Option pricing (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:181:y:2014:i:1:p:53-63

DOI: 10.1016/j.jeconom.2014.02.008

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