Normal modified stable processes

Ole Barndorff-Nielsen and Neil Shephard ()

No 2001-W6, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: This paper discusses two classes of distributions, and stochastic processes derived from them: modified stable (MS) laws and normal modified stable (NMS) laws. This extends corresponding results for the generalised inverse Gaussian (GIG) and generalised hypberbolic (GH) or normal generalised inverse Gaussian (NGIG) laws. The wider framework thus established provides, in particular, for added flexibility in the modelling of the dynamics of financial time series, of importance especially as regards OU based stochastic volatility models for equities. In the special case of the tempered stable OU process an exact option pricing formula can be found, extending previous results based on the inverse Gaussian and gamma distributions.

Pages: 25pages
Date: 2001-06-10
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (43)

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Working Paper: Normal Modified Stable Processes (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0106

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