The Variance Gamma (V.G.) Model for Share Market Returns

Dilip B Madan and Eugene Seneta

The Journal of Business, 1990, vol. 63, issue 4, 511-24

Abstract: A new stochastic process, termed the variance gamma process, is proposed as a model for the uncertainty underlying security prices. The unit period distribution is normal conditional on a variance that is distributed as a gamma variate. Its advantages include long tailedness, continuous-time specification, finite moments of all orders, elliptical multivariate unit period distributions, and good empirical fit. The process is pure jump, approximable by a compound Poisson process with high jump frequency and low jump magnitudes. Applications to option pricing show differential effects for options on the money, compared to in or out of the money. Copyright 1990 by the University of Chicago.

Date: 1990
References: Add references at CitEc
Citations: View citations in EconPapers (408)

Downloads: (external link)
http://dx.doi.org/10.1086/296519 full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

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:ucp:jnlbus:v:63:y:1990:i:4:p:511-24

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().