Exponential Lévy Models with Stochastic Volatility and Stochastic Jump-Intensity
20 Pages Posted: 10 May 2012 Last revised: 12 May 2012
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: 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
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