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.
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Belkacem, L. (1997). α-Stochastic Differential Equations and Option Pricing Model. In: Lévy Véhel, J., Lutton, E., Tricot, C. (eds) Fractals in Engineering. Springer, London. https://doi.org/10.1007/978-1-4471-0995-2_27
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DOI: https://doi.org/10.1007/978-1-4471-0995-2_27
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