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Option Pricing for Time-Change Exponential Lévy Model Under Memm

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Abstract

The purpose of this article is to study the rational evaluation of European options price when the underlying price process is described by a time-change Lévy process. European option pricing formula is obtained under the minimal entropy martingale measure (MEMM) and applied to several examples of particular time-change Lévy processes. It can be seen that the framework in this paper encompasses the Black-Scholes model and almost all of the models proposed in the subordinated market.

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Authors and Affiliations

  1. Department of Mathematics, Hunan Normal University, Changsha, 410081, China

    Xu Chen

  2. Department of Mathematics, Huazhong University of Science & Technology, Wuhan, 430074, China

    Jian-ping Wan

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  1. Xu Chen
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  2. Jian-ping Wan
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Correspondence to Xu Chen.

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Chen, X., Wan, Jp. Option Pricing for Time-Change Exponential Lévy Model Under Memm. Acta Mathematicae Applicatae Sinica, English Series 23, 651–664 (2007). https://doi.org/10.1007/s10255-007-0403

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  • DOI: https://doi.org/10.1007/s10255-007-0403

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