Option pricing with time-changed Lévy processes

Sven Klingler; Young Shin Kim; Svetlozar T. Rachev; Frank J. Fabozzi

doi:10.1080/09603107.2013.807024

Option pricing with time-changed Lévy processes

Sven Klingler, Young Shin Kim, Svetlozar T. Rachev, Frank J. Fabozzi

Mathematics and Statistics

Research output: Contribution to journal › Article

9 Scopus citations

Abstract

In this article, we introduce two new six-parameter processes based on time-changing tempered stable distributions and develop an option pricing model based on these processes. This model provides a good fit to observed option prices. To demonstrate the advantages of the new processes, we conduct two empirical studies to compare their performance to other processes that have been used in the literature.

Original language	English
Pages (from-to)	1231-1238
Number of pages	8
Journal	Applied Financial Economics
Volume	23
Issue number	15
DOIs	https://doi.org/10.1080/09603107.2013.807024
State	Published - Aug 2013

Keywords

Lévy processes
option pricing
stochastic volatility
stochastic-time change
tempered stable distributions

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10.1080/09603107.2013.807024

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title = "Option pricing with time-changed L{\'e}vy processes",

abstract = "In this article, we introduce two new six-parameter processes based on time-changing tempered stable distributions and develop an option pricing model based on these processes. This model provides a good fit to observed option prices. To demonstrate the advantages of the new processes, we conduct two empirical studies to compare their performance to other processes that have been used in the literature.",

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