During the last decade, financial models based on jump processes have acquired increasing popularity in risk management and option pricing. Much has been published on the subject, but the technical nature of most papers makes them difficult for nonspecialists to understand, and the mathematical tools required for applications can be intimidating. Financial Modelling with Jump Processes shows that this is not so. It provides a self-contained overview of the theoretical, numerical, and empirical aspects involved in using jump processes in financial modelling, and it does so in terms within the grasp of nonspecialists.
|Published (Last):||22 January 2013|
|PDF File Size:||2.94 Mb|
|ePub File Size:||12.46 Mb|
|Price:||Free* [*Free Regsitration Required]|
Option price models such as the Black-Sholes and the binomial tree models rely on the assumption that the underlying asset price dynamics follow the GBM. Modeling the asset price dynamics by using the GBM implies that the log return of assets at particular time is normally distributed. Many studies on real data in the markets showed that the GBM fails to capture the characteristic features of asset price dynamics that exhibit heavy tails and excess kurtosis. In our study, a class of Levy process, which is called a variance gamma VG process, performs much better than GBM model for modeling the dynamics of those stock indices.
However, valuation of financial instruments, e. Here, we propose a new approach to the valuation of European option. It is based on the conditional distribution of the VG process. We also apply the path simulation model to value American options by assuming the underlying asset log return follow the VG process. Such a model is similar with that proposed by Tiley . Simulation study shows that the proposed method performs well in term of the option price.
ISBN 13: 9781584884132
Balabar Kump you have even a basic familiarity with quantitative methods in finance, Financial Modelling with Jump Processes will give you a valuable new set of tools for modelling market fluctuations. From Theory To Practice. Financial Modelling with Jump Processes shows that this is not so. Description Table of Contents Reviews. The authors illustrate the mathematical concepts with many numerical and empirical examples and provide the details of numerical implementation of pricing and calibration algorithms.