Pricing, Risk and Volatility in Subordinated Market Models

Jean-Philippe Aguilar, Justin Lars Kirkby and Jan Korbel
Additional contact information
Jean-Philippe Aguilar: Covéa Finance, Quantitative Research Team, 8-12 rue Boissy d’Anglas, FR75008 Paris, France
Justin Lars Kirkby: School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, GA 30318, USA
Jan Korbel: Section for the Science of Complex Systems, Center for Medical Statistics, Informatics, and Intelligent Systems (CeMSIIS), Medical University of Vienna, Spitalgasse 23, 1090 Vienna, Austria

Risks, 2020, vol. 8, issue 4, 1-27

Abstract: We consider several market models, where time is subordinated to a stochastic process. These models are based on various time changes in the Lévy processes driving asset returns, or on fractional extensions of the diffusion equation; they were introduced to capture complex phenomena such as volatility clustering or long memory. After recalling recent results on option pricing in subordinated market models, we establish several analytical formulas for market sensitivities and portfolio performance in this class of models, and discuss some useful approximations when options are not far from the money. We also provide some tools for volatility modelling and delta hedging, as well as comparisons with numerical Fourier techniques.

Keywords: Lévy process; subordination; option pricing; risk sensitivity; stochastic volatility; Greeks; time-change (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.mdpi.com/2227-9091/8/4/124/pdf (application/pdf)
https://www.mdpi.com/2227-9091/8/4/124/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:8:y:2020:i:4:p:124-:d:446482

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().