Additive logistic processes in option pricing (Q2238772)

The authors start from two simple arbitrage-free valuation equations, inspired by the log-sum-exponential function and an \(l^p\) vector norm leading, respectively, to logistic and Dagum (or ``log-skew-logistic'') risk-neutral distributions for the underlying security price. They exhibit supporting martingale processes of additive type for underlying securities having as time marginals two such distributions. By construction, these processes produce closed-form valuation equations, simpler than those of the Bachelier and Samuelson-Black-Scholes models. Additive logistic processes provide parsimonious and simple option pricing models capturing various important stylised facts at the minimum price of a single market observable input.