A Stroock formula for a certain class of Lévy processes and applications to finance

DOI10.1155/JAMSA.2005.211MaRDI QIDQ2498178zbMATH OpenOpenAlexFDO

Authors Josep Vives, M'hamed Eddahbi, Josép Lluis Solé

Publication date 28 August 2006

Published in Journal of Applied Mathematics and Stochastic Analysis (Search for Journal in Brave)

Full work available at URL https://eudml.org/doc/52727

zbMATH Keywords

discrete delta neutral hedginggeneralized chaos expansionlocal timeMalliavin-type derivative

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51)

Review text

Summary: We find a Stroock formula in the setting of generalized chaos expansion introduced by \textit{D. Nualart} and \textit{W. Schoutens} [Stochastic Processes Appl. 90, No. 1, 109--122 (2000; Zbl 1047.60088)] for a certain class of Lévy processes, using a Malliavin-type derivative based on the chaotic approach. As applications, we get the chaotic decomposition of the local time of a simple Lévy process as well as the chaotic expansion of the price of a financial asset and of the price of a European call option. We also study the behavior of the tracking error in the discrete delta neutral hedging under both the equivalent martingale measure and the historical probability.

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• Dyson type formula for pure jump Lévy processes with some applications to finance
• A volatility-varying and jump-diffusion Merton type model of interest rate risk
• Some Applications of Lévy Processes to Stochastic Investment Models for Actuarial Use
• The explicit chaotic representation of the powers of increments of Lévy processes
• Permutation invariant functionals of Lévy processes

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