Exchange Option Pricing Under Variance Gamma-Like Models

DOI10.1080/1350486X.2023.2248791MaRDI QIDQ6047093zbMATH OpenOpenAlexFDO

Authors Matteo Gardini, Piergiacomo Sabino

Publication date 9 October 2023

Published in Applied Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2207.00453

zbMATH Keywords

derivative pricingenergy marketsexchange optionsLévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: In this article we focus on the pricing of exchange options when the dynamic of logprices follows either the well-known variance gamma or the recent variance gamma++ process introduced in Gardini et al [19]. In particular, for the former model we can derive a Margrabe's type formula whereas, for the latter one we can write an "integral free" formula. Furthermore, we show how to construct a general multidimensional versions of the variance gamma++ processes preserving both the mathematical and numerical tractability. Finally we apply the derived models to German and French energy power markets: we calibrate their parameters using real market data and we accordingly evaluate exchange options with the derived closed formulas, Fourier based methods and Monte Carlo techniques.

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Cited in

(7)

• Explicit representations for the expectations of exponential functionals of the multi-factor variance gamma process and their applications
• Option pricing in a conditional bilateral Gamma model
• Some pricing tools for the variance gamma model
• On exact pricing of FX options in multivariate time-changed Lévy models
• On the numerical evaluation of option prices in the variance gamma model
• The multivariate variance gamma model: basket option pricing and calibration
• A study of Greek letters of currency option under uncertainty environments

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