Option pricing with Levy Process

Eric Benhamou ()

Finance from University Library of Munich, Germany

Abstract: In this paper, we assume that log returns can be modelled by a Levy process. We give explicit formulae for option prices by means of the Fourier transform. We explain how to infer the characteristics of the Levy process from option prices. This enables us to generate an implicit volatility surface implied by market data. This model is of particular interest since it extends the seminal Black Scholes [1973] model consistently with volatility smile.

Keywords: Levy process; Fourier and Laplace transform; Smile. (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 118 pages
Date: 2002-12-21
Note: Type of Document - PDF; prepared on windows; pages: 118
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0212006

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