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Option Pricing for Symmetric L\'evy Returns with Applications

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Listed:
  • Kais Hamza
  • Fima C. Klebaner
  • Zinoviy Landsman
  • Ying-Oon Tan

Abstract

This paper considers options pricing when the assumption of normality is replaced with that of the symmetry of the underlying distribution. Such a market affords many equivalent martingale measures (EMM). However we argue (as in the discrete-time setting of Klebaner and Landsman, 2007) that an EMM that keeps distributions within the same family is a "natural" choice. We obtain Black-Scholes type option pricing formulae for symmetric Variance-Gamma and symmetric Normal Inverse Gaussian models.

Suggested Citation

  • Kais Hamza & Fima C. Klebaner & Zinoviy Landsman & Ying-Oon Tan, 2014. "Option Pricing for Symmetric L\'evy Returns with Applications," Papers 1402.1554, arXiv.org.
    • Handle: RePEc:arx:papers:1402.1554
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    References listed on IDEAS

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