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A Stroock formula for a certain class of Lévy processes and applications to finance

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  • M. Eddahbi
  • J. L. Solé
  • J. Vives

Abstract

We find a Stroock formula in the setting of generalized chaos expansion introduced by Nualart and Schoutens for a certain class of Lévy processes, using a Malliavin-type derivative based on the chaotic approach. As applications, we get the chaotic decomposition of the local time of a simple Lévy process as well as the chaotic expansion of the price of a financial asset and of the price of a European call option. We also study the behavior of the tracking error in the discrete delta neutral hedging under both the equivalent martingale measure and the historical probability.

Suggested Citation

  • M. Eddahbi & J. L. Solé & J. Vives, 2005. "A Stroock formula for a certain class of Lévy processes and applications to finance," International Journal of Stochastic Analysis, Hindawi, vol. 2005, pages 1-25, January.
    • Handle: RePEc:hin:jnijsa:438197
    DOI: 10.1155/JAMSA.2005.211
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