PRICING DERIVATIVES ON TWO-DIMENSIONAL LÉVY PROCESSES

José Fajardo () and Ernesto Mordecki ()
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Ernesto Mordecki: Facultad de Ciencias, Centro de Matemática, Iguá 4225, CP 11400, Montevideo, Uruguay

International Journal of Theoretical and Applied Finance (IJTAF), 2006, vol. 09, issue 02, 185-197

Abstract: The aim of this work is to use a duality approach to study the pricing of derivatives depending on two stocks driven by a bidimensional Lévy process. The main idea is to apply Girsanov's Theorem for Lévy processes, in order to reduce the posed problem to a problem with one Lévy driven stock in an auxiliary market, baptized as "dual market". In this way, we extend the results obtained by Gerber and Shiu [5] for two-dimensional Brownian motion.

Keywords: Lévy processes; optimal stopping; dual market method; derivative pricing (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (8)

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DOI: 10.1142/S0219024906003536

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