Analytical Aproach to Value Options with State Variables of a Levy System

Nguyen Thanh Long
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Nguyen Thanh Long: Warsaw School of Economics
Authors registered in the RePEc Author Service: Long Nguyen-Thanh

Finance from University Library of Munich, Germany

Abstract: In this paper we discuss an analytical method in pricing contingent claims of European style on the assets, whose state variables follow a multi-dimensional Levy process. We give explicit formulae for the hypothetical ``two-price'' contingent claim prices by means of the conditional characteristic transforms. The work not only unifies and extends the option pricing literature, which focuses on the use of the characteristic function, but also provides the way to formalize and unify the valuation of the contingent claim price, the valuation of the discount bond price, the valuation of the scaled-forward price, and determining the pricing measures in incomplete markets.

Keywords: Levy Process; Option Pricing; Characteristic Function; Analitical Method; Fourier transform (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2002-08-16, Revised 2003-01-19
New Economics Papers: this item is included in nep-ets and nep-fin
Note: Type of Document - TeX/PDF; prepared on PC-TEX; pages: 36
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0207004

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