Time-Changed Levy Process and Option Pricing
Author | : Peter Carr |
Publisher | : |
Total Pages | : 35 |
Release | : 2001 |
ISBN-10 | : OCLC:1290402491 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Time-Changed Levy Process and Option Pricing written by Peter Carr and published by . This book was released on 2001 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We apply stochastic time change to Levy processes to generate a wide variety of tractable option pricing models. In particular, we prove a fundamental theorem that transforms the characteristic function of the time-changed Levy process into the Laplace transform of the stochastic time under appropriate measure change. We extend the traditional measure theory into the complex domain and define the measure change by a class of complex valued exponential martingales. We provide extensive examples to illustrate its applications and its link to existing models in the literature.