Geometric Lévy Process Pricing Model

Yoshio Miyahara and Alexander Novikov

No 66, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: We consider models for stock prices which relates to random processes with independent homogeneous increments (Levy processes). These models are arbitrage free but correspond to the incomplete financial market. There are many different approaches for pricing of financial derivatives. We consider here mainly the approach which is based on minimal relative entropy. This method is related to an utility function of exponential type and the Esscher transformation of probabilistic measures.

Pages: 23 pages
Date: 2001-12-01
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Citations: View citations in EconPapers (2)

Published as: Miyahara, Y. and Novikov, A., 2002. "Geometric Lévy Process Pricing Model", Proceedings of Steklov Mathematical Institute, 237, 176-191.

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