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Exchange option pricing under variance gamma-like models

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  • Matteo Gardini
  • Piergiacomo Sabino

Abstract

In this article we focus on the pricing of exchange options when the dynamic of logprices follows either the well-known variance gamma or the recent variance gamma++ process introduced in Gardini et al [19]. In particular, for the former model we can derive a Margrabe's type formula whereas, for the latter one we can write an "integral free" formula. Furthermore, we show how to construct a general multidimensional versions of the variance gamma++ processes preserving both the mathematical and numerical tractability. Finally we apply the derived models to German and French energy power markets: we calibrate their parameters using real market data and we accordingly evaluate exchange options with the derived closed formulas, Fourier based methods and Monte Carlo techniques.

Suggested Citation

  • Matteo Gardini & Piergiacomo Sabino, 2022. "Exchange option pricing under variance gamma-like models," Papers 2207.00453, arXiv.org.
    • Handle: RePEc:arx:papers:2207.00453
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    References listed on IDEAS

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