Option pricing by Esscher transforms in the cases of normal inverse Gaussian and variance gamma processes

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Title Option pricing by Esscher transforms in the cases of normal inverse Gaussian and variance gamma processes
Autor: Troush, N.N.; Kuzmina, A.V.
URI: http://hdl.handle.net/11331/3398
Date: 2012
Źródło: Studia Informatica : systemy i technologie informacyjne. Nr 16 (2012), s. 35-43
Abstract: The class of Esscher transforms is an important tool for option pricing Gerber and Shiu (1994) showed that the Esscher transform is an efficient technique for valuing derivative securities if the log returns of the underlying securities are governed by certain stochastic processes with stationary and independent increments. Levy processes are the processes of such type. Special cases of the Levy processes such as the normal inverse Gaussian process and the variance gamma process are considered at this paper. Values of these processes parameters for the existence of Esscher transform are deduced. A new algorithm of a normal inverse Gaussian process and variance gamma process simulation is also presented in this paper. These algorithm is universal and simpler one compared with analogous algorithms.

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