Time-changed Levy processes and option pricing

• 成果类型: Article
• 署名作者: Carr, P; Wu, LR
• 署名单位: City University of New York (CUNY) System; Baruch College (CUNY); New York University; Bloomberg L.P.
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(03)00171-5
• 发表日期: 2004
• 页码: 113-141
• 关键词: Levy processes; random time change; option pricing; Fourier transforms; measure change

摘要

The classic Black-Scholes option pricing model assumes that returns follow Brownian motion, but return processes differ from this benchmark in at least three important ways. First, asset prices jump, leading to non-normal return innovations. Second, return volatilities vary stochastically over time. Third, returns and their volatilities are correlated, often negatively for equities. Time-changed Levy, processes can simultaneously address these three issues. We show that our framework encompasses almost all of the models proposed in the option pricing literature, and it is straightforward to select and test a particular option pricing model through the use of characteristic function technology. (C) 2003 Elsevier B.V. All rights reserved.