Option pricing with Levy-Stable processes generated by Levy-Stable integrated variance

Álvaro Cartea () and Sam Howison

Quantitative Finance, 2009, vol. 9, issue 4, 397-409

Abstract: We show how to calculate European-style option prices when the log-stock price process follows a Levy-Stable process with index parameter 1 ≤ α ≤ 2 and skewness parameter -1 ≤ β ≤ 1. Key to our result is to model integrated variance [image omitted] as an increasing Levy-Stable process with continuous paths in T.

Keywords: Commodity markets; Commodity prices; Levy process; Hedging techniques (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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Working Paper: Option Pricing with Lévy-Stable Processes Generated by Lévy-Stable Integrated Variance (2006)
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DOI: 10.1080/14697680902748506

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