Joint distribution of a spectrally negative Lévy process and its occupation time, with step option pricing in view

DOI10.1017/APR.2015.17zbMATH Open1337.60090arXiv1406.3130OpenAlexW1505293895MaRDI QIDQ2806357FDOQ2806357

Authors: Hélène Guérin, Jean-François Renaud 

Publication date: 17 May 2016

Published in: Advances in Applied Probability (Search for Journal in Brave)

Abstract: For a spectrally negative L'evy process $X$, we study the following distribution: ${\displaystyle }$ mathbb{E}_x left[ mathrm{e}^{- q int_0^t mathbf{1}_{(a,b)} (X_s) mathrm{d}s } ; X_t in mathrm{d}y ight], ${\displaystyle }$ where $-inftyleqa<b<infty$, and where $q,t>0$ and $xinmathbbR$. More precisely, we identify the Laplace transform with respect to $t$ of this measure in terms of the scale functions of the underlying process. Our results are then used to price step options and the particular case of an exponential spectrally negative L'evy jump-diffusion model is discussed.

Full work available at URL: https://arxiv.org/abs/1406.3130

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zbMATH Keywords

occupation timescale functionfluctuation theorystep option pricingspectrally negative Lévy processLévy jump-diffusion model

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Derivative securities (option pricing, hedging, etc.) (91G20) Diffusion processes (60J60) Financial applications of other theories (91G80)

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Cited In (21)

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