IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v260y2018i1d10.1007_s10479-016-2180-x.html
   My bibliography  Save this article

Option pricing in an exponential MixedTS Lévy process

Author

Listed:
  • Lorenzo Mercuri

    (University of Milan)

  • Edit Rroji

    (University of Trieste)

Abstract

In this paper we present an option pricing model based on the assumption that the underlying asset price is an exponential Mixed Tempered Stable Lévy process. We also introduce a new R package called PricingMixedTS that allows the user to calibrate this model using procedures based on loss or likelihood functions.

Suggested Citation

  • Lorenzo Mercuri & Edit Rroji, 2018. "Option pricing in an exponential MixedTS Lévy process," Annals of Operations Research, Springer, vol. 260(1), pages 353-374, January.
    • Handle: RePEc:spr:annopr:v:260:y:2018:i:1:d:10.1007_s10479-016-2180-x
    DOI: 10.1007/s10479-016-2180-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-016-2180-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-016-2180-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. A. S. Hurn & K. A. Lindsay & A. J. McClelland, 2015. "Estimating the Parameters of Stochastic Volatility Models Using Option Price Data," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(4), pages 579-594, October.
    2. Catherine S. Forbes & Gael M. Martin & Jill Wright, 2007. "Inference for a Class of Stochastic Volatility Models Using Option and Spot Prices: Application of a Bivariate Kalman Filter," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 387-418.
    3. Christoffersen, Peter & Jacobs, Kris, 2004. "The importance of the loss function in option valuation," Journal of Financial Economics, Elsevier, vol. 72(2), pages 291-318, May.
    4. Haitao Li & Martin T. Wells & Cindy L. Yu, 2008. "A Bayesian Analysis of Return Dynamics with Lévy Jumps," The Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2345-2378, September.
    5. Carr, Peter & Wu, Liuren, 2004. "Time-changed Levy processes and option pricing," Journal of Financial Economics, Elsevier, vol. 71(1), pages 113-141, January.
    6. Edit Rroji & Lorenzo Mercuri, 2015. "Mixed tempered stable distribution," Quantitative Finance, Taylor & Francis Journals, vol. 15(9), pages 1559-1569, September.
    7. Ernst Eberlein & Dilip Madan, 2009. "Sato processes and the valuation of structured products," Quantitative Finance, Taylor & Francis Journals, vol. 9(1), pages 27-42.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kaeck, Andreas & Seeger, Norman J., 2020. "VIX derivatives, hedging and vol-of-vol risk," European Journal of Operational Research, Elsevier, vol. 283(2), pages 767-782.
    2. Asmerilda Hitaj & Lorenzo Mercuri & Edit Rroji, 2019. "Sensitivity analysis of Mixed Tempered Stable parameters with implications in portfolio optimization," Computational Management Science, Springer, vol. 16(1), pages 71-95, February.
    3. Asmerilda Hitaj & Friedrich Hubalek & Lorenzo Mercuri & Edit Rroji, 2016. "Multivariate Mixed Tempered Stable Distribution," Papers 1609.00926, arXiv.org, revised Oct 2016.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kaeck, Andreas, 2013. "Asymmetry in the jump-size distribution of the S&P 500: Evidence from equity and option markets," Journal of Economic Dynamics and Control, Elsevier, vol. 37(9), pages 1872-1888.
    2. repec:qut:auncer:2012_11 is not listed on IDEAS
    3. Fabozzi, Frank J. & Leccadito, Arturo & Tunaru, Radu S., 2014. "Extracting market information from equity options with exponential Lévy processes," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 125-141.
    4. Cui, Yiran & del Baño Rollin, Sebastian & Germano, Guido, 2017. "Full and fast calibration of the Heston stochastic volatility model," European Journal of Operational Research, Elsevier, vol. 263(2), pages 625-638.
    5. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    6. Du Du & Dan Luo, 2019. "The Pricing of Jump Propagation: Evidence from Spot and Options Markets," Management Science, INFORMS, vol. 67(5), pages 2360-2387, May.
    7. Bruce Mizrach, 2007. "Recovering Probabilistic Information From Options Prices and the Underlying," Departmental Working Papers 200702, Rutgers University, Department of Economics.
    8. Carol Alexander & Andreas Kaeck, 2012. "Does model fit matter for hedging? Evidence from FTSE 100 options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(7), pages 609-638, July.
    9. Liu, Xiaoquan & Cao, Yi & Ma, Chenghu & Shen, Liya, 2019. "Wavelet-based option pricing: An empirical study," European Journal of Operational Research, Elsevier, vol. 272(3), pages 1132-1142.
    10. Peter Christoffersen & Kris Jacobs & Karim Mimouni, 2007. "Models for S&P500 Dynamics: Evidence from Realized Volatility, Daily Returns, and Option Prices," CREATES Research Papers 2007-37, Department of Economics and Business Economics, Aarhus University.
    11. David S. Bates, 2009. "U.S. Stock Market Crash Risk, 1926-2006," NBER Working Papers 14913, National Bureau of Economic Research, Inc.
    12. Claudia Yeap & Simon S Kwok & S T Boris Choy, 2018. "A Flexible Generalized Hyperbolic Option Pricing Model and Its Special Cases," Journal of Financial Econometrics, Oxford University Press, vol. 16(3), pages 425-460.
    13. Endres, Sylvia & Stübinger, Johannes, 2017. "Optimal trading strategies for Lévy-driven Ornstein-Uhlenbeck processes," FAU Discussion Papers in Economics 17/2017, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    14. Gurupdesh S. Pandher, 2007. "Regression-based modeling of market option prices: with application to S&P500 options," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 26(7), pages 475-496.
    15. Christoffersen, Peter & Jacobs, Kris & Chang, Bo Young, 2013. "Forecasting with Option-Implied Information," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 581-656, Elsevier.
    16. Erdemlioglu, Deniz & Laurent, Sébastien & Neely, Christopher J., 2015. "Which continuous-time model is most appropriate for exchange rates?," Journal of Banking & Finance, Elsevier, vol. 61(S2), pages 256-268.
    17. Peter Christoffersen & Steven Heston & Kris Jacobs, 2009. "The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well," Management Science, INFORMS, vol. 55(12), pages 1914-1932, December.
    18. Shackleton, Mark B. & Taylor, Stephen J. & Yu, Peng, 2010. "A multi-horizon comparison of density forecasts for the S&P 500 using index returns and option prices," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2678-2693, November.
    19. A. S. Hurn & K. A. Lindsay & A. J. McClelland, 2015. "Estimating the Parameters of Stochastic Volatility Models Using Option Price Data," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(4), pages 579-594, October.
    20. Ornthanalai, Chayawat, 2014. "Lévy jump risk: Evidence from options and returns," Journal of Financial Economics, Elsevier, vol. 112(1), pages 69-90.
    21. Pawel J. Szerszen, 2009. "Bayesian analysis of stochastic volatility models with Lévy jumps: application to risk analysis," Finance and Economics Discussion Series 2009-40, Board of Governors of the Federal Reserve System (U.S.).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:260:y:2018:i:1:d:10.1007_s10479-016-2180-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.