期刊
COMPUTATIONAL ECONOMICS
卷 53, 期 3, 页码 1279-1308出版社
SPRINGER
DOI: 10.1007/s10614-018-9807-8
关键词
Quanto option pricing; Levy process; Stable and tempered stable process; Subordinator
资金
- Swiss National Science Foundation Sinergia Grant Empirics of Financial Stability [154445]
- BNP Paribas
We develop a multivariate Levy model and apply the bivariate model for the pricing of quanto options that captures three characteristics observed in real-world markets for stock prices and currencies: jumps, heavy tails and skewness. The model is developed by using a bottom-up approach from a subordinator. We do so by replacing the time of a Brownian motion with a Levy process, exponential tilting subordinator. We refer to this model as a multivariate exponential tilting process. We then compare using a time series of daily log-returns and market prices of European-style quanto options the relative performance of the exponential tilting process to that of the Black-Scholes and the normal tempered stable process. We find that, due to more flexibility on capturing the information of tails and skewness, the proposed modeling process is superior to the other two processes for fitting market distribution and pricing quanto options.
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