Time changes for Lévy processes
Such assumptions as continuity of price processes have long served finance as a convenient and powerful approach, delivering market completeness and unique pricing of derivatives by arbitrage. They are crucial to the validity of some option pricing theories and the associated dynamic hedging strategy. The goal of this paper is to consider instead pure jump Lévy processes of finite variation with an infinite arrival rate of jumps as models for the logarithm of asset prices. These processes replace the role of Brownian motion in the classical models and the resulting price process can be expressed as the difference between two increasing random processes that account for the upward and downward moves of the market. Thus, the proposed processes are both purely discontinuous and, unlike Brownian motion, of finite variation.NEWLINENEWLINENEWLINEThe authors argue that price processes, being semimartingales are time-changed Brownian motion. They observe that as time changes are increasing random processes they are for practical purposes purely discontinuous if they are not locally deterministic. This leads them to consider purely discontinuous models for the prices of financial assets. By various examples they show that one may generally relate this time change to a measure of price moves. The specific time changes are Poisson processes, gamma processes, general subordinators, and the inverse local time of Brownian motion at zero. In each case the authors exhibit the price process as the above-mentioned difference between two increasing processes and show how the price process may be viewed as Brownian motion evaluated at a random time that is related to the price moves. They also provide numerous examples of potentially empirically relevant Lévy processes with closed-form expressions for their Lévy densities and characteristic functions. The resulting models are tractable for both option pricing and statistical estimation.
- Closed-form valuations of basket options using a multivariate normal inverse Gaussian model
- Analysis of quadrature methods for pricing discrete barrier options
- Stochastic calculus for assets with non-Gaussian price fluctuations
- Pricing foreign equity option with stochastic volatility
- Volatility smile as relativistic effect
- Existence and stability of solutions to non-Lipschitz stochastic differential equations driven by Lévy noise
- Empirical scaling laws and the aggregation of non-stationary data
- Options pricing with time changed Lévy processes under imprecise information
- Factor models for option pricing
- Lévy-Ito models in finance
- Time-changed spectrally positive Lévy processes started from infinity
- Financial modelling applying multivariate Lévy processes: new insights into estimation and simulation
- Quadratic variation, models, applications and lessons
- Time changes that result in multiple points in continuous-time Markov counting processes
- Additive logistic processes in option pricing
- Option pricing in time-changed Lévy models with compound Poisson jumps
- Lévy processes driven by stochastic volatility
- Pricing average options under time-changed Lévy processes
- The randomly stopped geometric Brownian motion
- Potential theory of geometric stable processes
- Green function estimates and Harnack inequality for subordinate Brownian motions
- Improved convergence rate for the simulation of stochastic differential equations driven by subordinated Lévy processes.
- Multivariate time changes for Lévy asset models: characterization and calibration
- An iterative splitting method for pricing European options under the Heston model
- Asset prices are Brownian motion: Only in business time
- Purely discontinuous asset price processes
- Leveraged Lévy processes as models for stock prices
- Lévy processes through time shift on oscillator Weyl algebra
- Calibrating the smile with multivariate time-changed Brownian motion and the Esscher transform
- A generalized variance gamma process for financial applications
- On the Stability of Prices of Contingent Claims in Incomplete Models Under Statistical Estimations
- A multivariate pure-jump model with multi-factorial dependence structure
- Fast computation of vanilla prices in time-changed models and implied volatilities using rational approximations
- An analytical valuation framework for financial assets with trading suspensions
- Some pricing tools for the variance gamma model
- Credit risk modeling using time-changed Brownian motion
- scientific article; zbMATH DE number 6521379 (Why is no real title available?)
- Option valuation, time-changed processes and the fast Fourier transform
- A generalized normal mean-variance mixture for return processes in finance
- Inference in Lévy-type stochastic volatility models
- Instantaneous portfolio theory
- Valuation of collateralized funds of hedge fund obligations: a basket option pricing approach
- Risk management of financial crises: an optimal investment strategy with multivariate jump-diffusion models
- From local volatility to local Lévy models
- Understanding option prices
- Valuing Bermudan options when asset returns are Lévy processes
- Option pricing and hedging in incomplete market driven by normal tempered stable process with stochastic volatility
- A PARSIMONIOUS CONTINUOUS TIME MODEL OF EQUITY INDEX RETURNS: INFERRED FROM HIGH FREQUENCY DATA
- Pricing and managing risks of ruin contingent life annuities under regime switching variance gamma process
- Stochastic Volatility for Lévy Processes
- On time changes for Lévy processes
- scientific article; zbMATH DE number 879749 (Why is no real title available?)
- Tail asymptotics of supremum of certain Gaussian processes over threshold dependent random intervals
- A semi-parametric method for estimating the beta coefficients of the hidden two-sided asset return jumps
- Fractional Lévy stable motion time-changed by gamma subordinator
- Clustered Lévy processes and their financial applications
- Multivariate Lévy processes with dependent jump intensity
- CORRELATION UNDER STRESS IN NORMAL VARIANCE MIXTURE MODELS
- Pricing equity and debt tranches of collateralized funds of hedge fund obligations: an approach based on stochastic time change and Esscher-transformed martingale measure
- Risk-Based Asset Allocation Under Markov-Modulated Pure Jump Processes
- Time-changed Ornstein-Uhlenbeck processes and their applications in commodity derivative models
- Pricing of the time-change risks
- Estimation and Simulation of the Riesz-Bessel Distribution
- Almost sure exponential stability for time-changed stochastic differential equations
- Stochastic Clock and Financial Markets
- Affine term structure models: A time‐change approach with perfect fit to market curves
- A transform-based method for pricing Asian options under general two-dimensional models
- CBI-time-changed Lévy processes
- Fluctuation scaling and covariance matrix of constituents' flows on a bipartite graph empirical analysis with high-frequency financial data based on a Poisson mixture model
- Generalized pricing formulas for stochastic volatility jump diffusion models applied to the exponential Vasicek model
- Sojourns of stationary Gaussian processes over a random interval
- Financial activity time
- Option pricing under time interval driven model
- A note on first-passage times of continuously time-changed Brownian motion
- Regulating stochastic clocks§
- Realized Quantiles*
- Optimal portfolio allocation with higher moments
- SVI solutions to stochastic nonlinear diffusion equations on general measure spaces
- Time change equations for Lévy-type processes
- A welcome to the jungle of continuous-time multivariate non-Gaussian models based on Lévy processes applied to finance
- Crypto inverse-power options and fractional stochastic volatility
- Assessing volatility persistence in fractional Heston models with self-exciting jumps
- Duality and transform analysis for non-decreasing functionals of stochastic processes and their applications
- Analytical pricing of time dependent stop-loss reinsurance and exposure curves under time-changed Brownian motion
- Effect of random time changes on Loewner hulls
- Properties of multinomial lattices with cumulants for option pricing and hedging
- Option pricing for pure jump processes with Markov switching compensators
- Infinite divisibility for stochastic processes and time change
This page was built for publication: Time changes for Lévy processes
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2707163)
