Option pricing under deformed Gaussian distributions

Enrico Moretto, Sara Pasquali and Barbara Trivellato

Physica A: Statistical Mechanics and its Applications, 2016, vol. 446, issue C, 246-263

Abstract: In financial literature many have been the attempts to overcome the option pricing drawbacks that affect the Black and Scholes model. Starting from the Tsallis deformation of the usual exponential function, this paper presents, in a complete market setup, a class of deformed geometric Brownian motions flexible enough to reproduce fat tails and to capture the volatility behavior observed in models that consider both stochastic volatility and jumps.

Keywords: Derivative pricing; Stochastic volatility; Deformed exponential; Fat tails; Tsallis exponential; Complete markets (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:446:y:2016:i:c:p:246-263

DOI: 10.1016/j.physa.2015.11.026

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