Multinomial method for option pricing under Variance Gamma

Nicola Cantarutti and Jo\~ao Guerra

Papers from arXiv.org

Abstract: This paper presents a multinomial method for option pricing when the underlying asset follows an exponential Variance Gamma process. The continuous time Variance Gamma process is approximated by a discrete time Markov chain with the same firsts four cumulants. This approach is particularly convenient for pricing American and Bermudan options, which can be exercised at any time up to expiration date. Numerical computations of European and American options are presented, and compared with results obtained with finite differences methods and with the Black Scholes model.

Date: 2016-12, Revised 2018-02
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in International Journal of Computer Mathematics, 96:6, 2019, 1087-1106,

Downloads: (external link)
http://arxiv.org/pdf/1701.00112 Latest version (application/pdf)

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:arx:papers:1701.00112

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().