Duality and Derivative Pricing with Time-Changed Lévy Processes

José Fajardo () and Ernesto Mordecki
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Ernesto Mordecki: Centro de Matemática, Facultad de Ciências, Universidad de la República, Uruguay

No 2005-12, IBMEC RJ Economics Discussion Papers from Economics Research Group, IBMEC Business School - Rio de Janeiro

Abstract: In this paper we study the pricing problem of derivatives written in terms of a two dimensional Time-changed Lévy processes. Then, we examine an existing relation between prices of put and call options, of both the European and the American type. This relation is called put-call duality. It includes as a particular case, the relation known as put-call symmetry. Necessary and sufficient conditions for put-call symmetry to hold are shown, in terms of the triplet of local characteristic of the Time-changed Lévy process. In this way we extend the results obtained by Fajardo and Mordecki (2004a) and Fajardo and Mordecki (2004b) to the case of Time-changed Lévy processes.

Keywords: Lévy processes; Time Change; Symmetry (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2005-11-29
New Economics Papers: this item is included in nep-fin
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Citations: View citations in EconPapers (2)

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