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Time-changed \levy processes and option pricing: a critical comment

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  • Hasan Fallahgoul
  • Kihun Nam

Abstract

Carr and Wu (2004), henceforth CW, developed a framework that encompasses almost all of the continuous-time models proposed in the option pricing literature. Their framework hinges on the stopping time property of the time changes. By analyzing the measurability of the time changes with respect to the underlying filtration, we show that all models CW proposed for the time changes fail to satisfy this assumption.

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  • Hasan Fallahgoul & Kihun Nam, 2019. "Time-changed \levy processes and option pricing: a critical comment," Papers 1907.00149, arXiv.org.
    • Handle: RePEc:arx:papers:1907.00149
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    1. Carr, Peter & Wu, Liuren, 2004. "Time-changed Levy processes and option pricing," Journal of Financial Economics, Elsevier, vol. 71(1), pages 113-141, January.
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