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Option Pricing With Vg–Like Models

Author

Listed:
  • RICHARD FINLAY

    (School of Mathematics and Statistics, University of Sydney, F07 University of Sydney, NSW 2006, Australia)

  • EUGENE SENETA

    (School of Mathematics and Statistics, University of Sydney, F07 University of Sydney, NSW 2006, Australia)

Abstract

We relax separately two assumptions regarding the Variance Gamma (VG) process and price options accordingly. In the case of the Difference of Gammas model we achieve a better fit to market data than achieved by other comparable models. In the case of the long range dependent VG model, we find that the current "skew-correcting" approach to pricing options has shortcomings, and identify a number of model characteristics (flexible skewness, dependence of squared returns, accommodation of the leverage effect) which appear to be important in achieving a good fit to market data.

Suggested Citation

  • Richard Finlay & Eugene Seneta, 2008. "Option Pricing With Vg–Like Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(08), pages 943-955.
    • Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:08:n:s0219024908005093
    DOI: 10.1142/S0219024908005093
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    Citations

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    Cited by:

    1. Lynn Boen & Florence Guillaume, 2020. "Towards a $$\Delta $$Δ-Gamma Sato multivariate model," Review of Derivatives Research, Springer, vol. 23(1), pages 1-39, April.
    2. Marina Marena & Andrea Romeo & Patrizia Semeraro, 2018. "Multivariate Factor-Based Processes With Sato Margins," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(01), pages 1-30, February.
    3. Florence Guillaume, 2013. "The αVG model for multivariate asset pricing: calibration and extension," Review of Derivatives Research, Springer, vol. 16(1), pages 25-52, April.

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