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A non-Gaussian option pricing model based on Kaniadakis exponential deformation

Author

Listed:
  • Enrico Moretto

    (Dipartimento di Economia, Universià dell’Insubria
    CNR-IMATI)

  • Sara Pasquali

    (CNR-IMATI)

  • Barbara Trivellato

    (CNR-IMATI
    Dipartimento di Matematica, Politecnico di Torino)

Abstract

A way to make financial models effective is by letting them to represent the so called “fat tails”, i.e., extreme changes in stock prices that are regarded as almost impossible by the standard Gaussian distribution. In this article, the Kaniadakis deformation of the usual exponential function is used to define a random noise source in the dynamics of price processes capable of capturing such real market phenomena.

Suggested Citation

  • Enrico Moretto & Sara Pasquali & Barbara Trivellato, 2017. "A non-Gaussian option pricing model based on Kaniadakis exponential deformation," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 90(10), pages 1-10, October.
    • Handle: RePEc:spr:eurphb:v:90:y:2017:i:10:d:10.1140_epjb_e2017-80112-x
    DOI: 10.1140/epjb/e2017-80112-x
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    References listed on IDEAS

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    1. Eckhard Platen & Renata Rendek, 2007. "Empirical Evidence on Student-t Log-Returns of Diversified World Stock Indices," Research Paper Series 194, Quantitative Finance Research Centre, University of Technology, Sydney.
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    Cited by:

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    Statistical and Nonlinear Physics;

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