Sequential sampling for CGMY processes via decomposition of their time changes

DOI10.1002/NAV.21821MaRDI QIDQ3120085zbMATH OpenOpenAlexWikidataFDO

Authors Chengwei Zhang, Zhiyuan Zhang

Publication date 1 March 2019

Published in Naval Research Logistics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1708.00189

zbMATH Keywords

CGMY processesdouble CFTPoption pricingsequential sampling

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We present a new and easy-to-implement sequential sampling method for CGMY processes with either finite or infinite variation, exploiting the time change representation of the CGMY model and a decomposition of its time change. We find that the time change can be decomposed into two independent components. While the first component is a emph{finite} emph{generalized gamma convolution} process whose increments can be sampled by either the exact double CFTP ("coupling from the past") method or an approximation scheme with high speed and accuracy, the second component can easily be made arbitrarily small in the $L^1$ sense. Simulation results show that the proposed method is advantageous over two existing methods under a model calibrated to historical option price data.

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Cited in

(1)

• On the role of skewness and kurtosis in tempered stable (CGMY) Lévy models in finance

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