Option Pricing with Levy Process

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type , Preprint 01 Jan 2001 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Eric Benhamou;

doi: 10.2139/ssrn.265685

Option Pricing with Levy Process

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Abstract

In this paper, we assume that log returns can be modelled by a Levy process. We give explicit formulae for option prices by means of the Fourier transform. We explain how to infer the characteristics of the Levy process from option prices. This enables us to generate an implicit volatility surface implied by market data. This model is of particular interest since it extends the seminal Black Scholes [1973] model consistently with volatility smile.

Related Organizations

Paris Dauphine University
France

Keywords

Levy process, Fourier and Laplace transform, Smile., jel: jel:G12, jel: jel:G13

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