A Stroock formula for a certain class of Lévy processes and applications to finance

M. Eddahbi, J. L. Solé and J. Vives

International Journal of Stochastic Analysis, 2005, vol. 2005, 1-25

Abstract:

We find a Stroock formula in the setting of generalized chaos expansion introduced by Nualart and Schoutens for a certain class of Lévy processes, using a Malliavin-type derivative based on the chaotic approach. As applications, we get the chaotic decomposition of the local time of a simple Lévy process as well as the chaotic expansion of the price of a financial asset and of the price of a European call option. We also study the behavior of the tracking error in the discrete delta neutral hedging under both the equivalent martingale measure and the historical probability.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnijsa:438197

DOI: 10.1155/JAMSA.2005.211

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