Exponential Lévy Models with Stochastic Volatility and Stochastic Jump-Intensity

20 Pages Posted: 10 May 2012 Last revised: 12 May 2012

See all articles by Matthew Lorig

Matthew Lorig

University of Washington - Applied Mathematics

Date Written: May 11, 2012

Abstract

We consider the problem of valuing a European option written on an asset whose dynamics are described by an exponential Lévy-type models.Both the volatility and jump-intensity of the Lévy process vary stochastically in time through a common driving factor. We provide an explicit formula for the approximate price of any European-style option and we establish the accuracy of our pricing approximation. An example is provided.

Keywords: Exponential Levy, Stochastic Volatility, Stochastic Jump Intensity, Spectral Theory, Perturbaton Theory

Suggested Citation

Lorig, Matthew, Exponential Lévy Models with Stochastic Volatility and Stochastic Jump-Intensity (May 11, 2012). Available at SSRN: https://ssrn.com/abstract=2055939 or http://dx.doi.org/10.2139/ssrn.2055939

Matthew Lorig (Contact Author)

University of Washington - Applied Mathematics ( email )

Seattle, WA
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
87
Abstract Views
612
Rank
523,966
PlumX Metrics