Empirical Performance of Levy Option Pricing Models
affiliation not provided to SSRN
University of Southern California - Marshall School of Business
September 10, 2008
There are a number of recent models that extend the Black and Scholes (1973) model by considering stochastic volatility and/or jumps, and appear to show good empirical performance. In this paper we consider some of the most successful models, all of them belonging to the class of Levy processes, and further study their empirical performance; in particular we consider their pricing performance for American options and their performance in terms of their put-call robustness; we find that their performance is good on the call side, but their put-call robustness gets lower scores than Black and Scholes (1973) with the possible exception of Carr, Geman, Madan and Yor (2002); we interpret our results as evidence of overfitting.
Keywords: Levy Process, Fourier Transform
JEL Classification: C63, G13working papers series
Date posted: September 12, 2008 ; Last revised: September 21, 2008
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