EconPapers    
Economics at your fingertips  
 

Pricing, Hedging and Assessing Risk in a General Lévy Context

Abdou Kélani and François Quittard-Pinon
Additional contact information
Abdou Kélani: CEFRA, EMLYON Business School
François Quittard-Pinon: CEFRA, EMLYON Business School

Bankers, Markets & Investors, 2014, issue 131, 30-42

Abstract: The goal of this paper is to suggest a general approach for risk management by allowing jumps to occur in the underlying of a European contingent claim. It gives a unified methodology for pricing, hedging and computing the standard risk measures, namely the Value-at-Risk (VaR) and the Conditional Tail Expectation (CTE). The core of the paper shows that such quantities as prices, hedging ratios and standard risk measures can be expressed as an integral form articularly suited for the calculation by FFT, simply by changing the integrand. The method can be applied as soon as the characteristic exponent of the Lévy rocess is known. The suggested unified method is easier to implement than the numerical solution to PIDE and faster than Monte Carlo simulations. It gives a powerful tool to practitioners who want to price and control risk of European derivatives in a non-Gaussian setting.

Keywords: Hedging Strategy; Pricing Embedded Option; Lévy Processes; FFT (search for similar items in EconPapers)
JEL-codes: G22 G11 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.revue-banque.fr/article/pricing-hedging ... risk-general-levy-co (text/html)
price

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:rbq:journl:i:131:p:30-42

Ordering information: This journal article can be ordered from
12 rue du Quatre-Septembre, 75002 PARIS France
http://www.eska.fr

Access Statistics for this article

More articles in Bankers, Markets & Investors from ESKA Publishing
Series data maintained by Marise Urbano ().

 
Page updated 2018-02-23
Handle: RePEc:rbq:journl:i:131:p:30-42