The empirical performances of assuming a Levy-stable distribution for modeling the dynamics of assets is investigated in the context of option pricing. The Levy-stable settings has the advantage of allowing for extreme events, which are not captured by standard gaussian models. The performances of these models are tested by calibrating their parameters cross sections of option prices. A comparison with Black and Scholes, Dupire’s local volatility and Heston’s stochastic volatility models is also given.
L. Barzanti, M. Corazza, P. Foschi (2007). Option pricing with Levy-stable returns: an empirical investigation. GENEVA : Department of Econometrics University of Geneva.
Option pricing with Levy-stable returns: an empirical investigation
BARZANTI, LUCA;
2007
Abstract
The empirical performances of assuming a Levy-stable distribution for modeling the dynamics of assets is investigated in the context of option pricing. The Levy-stable settings has the advantage of allowing for extreme events, which are not captured by standard gaussian models. The performances of these models are tested by calibrating their parameters cross sections of option prices. A comparison with Black and Scholes, Dupire’s local volatility and Heston’s stochastic volatility models is also given.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
