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Pricing and hedging of contingent claims of European type

In: Non-Gaussian Merton-Black-Scholes Theory

Author

Listed:
  • Svetlana I. Boyarchenko

    (University of Texas at Austin, USA)

  • Sergei Z. Levendorskiĭ

    (Rostov State University of Economics, Russia)

Abstract

The following sections are included:Equivalent Martingale Measures in a Lévy marketEsscher transformGeneral casePricing of European options and the generalized Black-Scholes formulaPricing formulas: convolution with the pricing kernel and the Fourier-inversion formulaCall and put optionsNumerical examples: the comparison with the Black-Scholes formula, and the shapes of the smileThe problem of the model fitting and evaluationGeneralized Black-Scholes equation and its properties for different RLPE and different choices of EMM, and implications for parameter fittingOther European optionsPower optionsDigital optionsCombinationsGeneral case: the condition on the rate of growth of the payoff at the infinity and the originHedgingGeneral discussionLocally risk-minimizing hedging ratioContinuity of the locally risk-minimizing hedging ratio till the expiryNumerical ExamplesCommentary

Suggested Citation

  • Svetlana I. Boyarchenko & Sergei Z. Levendorskiĭ, 2002. "Pricing and hedging of contingent claims of European type," World Scientific Book Chapters, in: Non-Gaussian Merton-Black-Scholes Theory, chapter 4, pages 97-120, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812777485_0004
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