Asymptotic behavior and calibration of short-time option prices under the normal tempered stable model

Jing Zhao and Shenghong Li

Communications in Statistics - Theory and Methods, 2022, vol. 51, issue 16, 5428-5445

Abstract: In recent years, small-time asymptotics of option prices have received much attention. In this paper, we derive short-time first-order expansions for price and implied volatility of at-the-money call options under the exponential Normal Tempered Stable model in two methods. The first method is similar to the approach used by Figueroa-López and Forde for the CGMY model. The other is based on the explicit form of characteristic functions of the Normal Tempered Stable processes. Our numerical results show that the expansions herein remarkably approximate the prices obtained by Fourier transform, even for options with maturities as long as a few years. For this reason, our expansions can be used for parameter calibration and model testing in a simple and efficient way.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/03610926.2020.1839774 (text/html)
Access to full text is restricted to subscribers.

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:taf:lstaxx:v:51:y:2022:i:16:p:5428-5445

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/lsta20

DOI: 10.1080/03610926.2020.1839774

Access Statistics for this article

Communications in Statistics - Theory and Methods is currently edited by Debbie Iscoe

More articles in Communications in Statistics - Theory and Methods from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().