Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
1144887 | Journal of the Korean Statistical Society | 2011 | 12 Pages |
Abstract
When the underlying asset price process follows a Lévy process, the market becomes incomplete, in which the option pricing can be a complicated problem. This paper proposes a method of asymptotic option pricing when the underlying asset price process follows a pure-jump Lévy process. We express the option price as the expected value of the discounted payoff and expand it at the Black–Scholes price assuming that the price process converges weakly to the Black–Scholes model. The price can be approximated by a formula with 4 parameters, which can easily be estimated using option prices observed in the market. The proposed price explains the market option data better than the Black–Scholes price in real data application with KOSPI 200.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Seongjoo Song, Jaehong Jeong, Jongwoo Song,