This paper presents a very general option pricing formula incorporating both thenLévy process methodology and the level dependent volatility approach. An approximate solution to the pricing problem is obtained throughout the construction of a parametrix by means of the pseudo differential calculus. Some examples are provided to illustrate the comprehensiveness of the framework. Finally, the implications in terms of the volatility smile are discussed.
Option pricing under generalized Lévy processes with state dependent parameters and the volatility surface
AGLIARDI, ROSSELLA
2013
Abstract
This paper presents a very general option pricing formula incorporating both thenLévy process methodology and the level dependent volatility approach. An approximate solution to the pricing problem is obtained throughout the construction of a parametrix by means of the pseudo differential calculus. Some examples are provided to illustrate the comprehensiveness of the framework. Finally, the implications in terms of the volatility smile are discussed.File in questo prodotto:
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