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Revisiting Variance Gamma pricing : An application to S&P500 index options

Mozumder, S and Sorwar, G 2015, 'Revisiting Variance Gamma pricing : An application to S&P500 index options' , International Journal of Financial Engineering . (Submitted)

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We reformulate the Lévy-Kintchine formula to make it suitable for modelling the stochastic time-changing effects of Lévy processes. Using Variance-Gamma (VG) process as an example, it illustrates the dynamic properties of a Lévy process and revisits the earlier work of Geman (2002). It also shows how the model can be calibrated to price options under a Lévy VG process, and calibrates the model on recent S&P500 index options data. It then compares the pricing performance of Fast Fourier Transform (FFT) and Fractional Fourier Transform (FRFT) approaches to model calibration and investigates the trade-off between calibration performance and required calculation time.

Item Type: Article
Schools: Schools > Salford Business School
Journal or Publication Title: International Journal of Financial Engineering
Publisher: World Scientific
Refereed: Yes
ISSN: 2424-7863
Related URLs:
Funders: Non funded research
Depositing User: G Sorwar
Date Deposited: 10 Jun 2015 17:57
Last Modified: 05 Apr 2016 19:28

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