α-Stochastic Differential Equations and Option Pricing Model

  • L. Belkacem
Conference paper

Abstract

This paper develops a numerical model for option pricing under the hypothesis that the underlying asset price satisfies a stochastic differential equation driven by an α-stable Lévy motion. We feed this model with simulated European call option prices and use it to explain the skewed “smile effect” of the implied volatility.

Keywords

Filtration Hull Radon Volatility Hedging 

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Copyright information

© Springer-Verlag London Limited 1997

Authors and Affiliations

  • L. Belkacem
    • 1
  1. 1.INRIA - Groupe FractalesLe Chesnay CedexFrance

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