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Geometric Lévy Process Pricing Model

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  • Yoshio Miyahara
  • Alexander Novikov

Abstract

We consider models for stock prices which relates to random processes with independent homogeneous increments (Levy processes). These models are arbitrage free but correspond to the incomplete financial market. There are many different approaches for pricing of financial derivatives. We consider here mainly the approach which is based on minimal relative entropy. This method is related to an utility function of exponential type and the Esscher transformation of probabilistic measures.

Suggested Citation

  • Yoshio Miyahara & Alexander Novikov, 2001. "Geometric Lévy Process Pricing Model," Research Paper Series 66, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:66
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    File URL: http://www.qfrc.uts.edu.au/research/research_papers/rp66.pdf
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    References listed on IDEAS

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    Cited by:

    1. S. Cawston & L. Vostrikova, 2010. "$F$-divergence minimal equivalent martingale measures and optimal portfolios for exponential Levy models with a change-point," Papers 1004.3525, arXiv.org, revised Jun 2011.
    2. Patrick Assonken & G. S. Ladde, 2015. "Option Pricing With A Levy-Type Stochastic Dynamic Model For Stock Price Process Under Semi-Markovian Structural Perturbations," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(08), pages 1-72, December.

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