Stochastic Volatility II: Variance Gamma Model: Analysis and Implementation

25 Pages Posted: 3 Apr 2010 Last revised: 21 Dec 2013

See all articles by Thomas Domenig

Thomas Domenig

Zurcher Kantonalbank

Paolo Vanini

University of Basel

Date Written: March 29, 2010

Abstract

We recall some fundamentals on Levy processes. Then the Gamma distribution, the Variance Gamma process and option pricing for this process are considered in detail. To implement the Variance Gamma model for option pricing, we use the fast Fourier transform, time change and discuss error bounds.

Keywords: Levy processes, Stochastic Volatility, Fourier Theory, Fast Fourier Analysis, Error Bounds, Time Change, Variance Gamma Model, Option Pricing

JEL Classification: C60, A24

Suggested Citation

Domenig, Thomas and Vanini, Paolo, Stochastic Volatility II: Variance Gamma Model: Analysis and Implementation (March 29, 2010). Available at SSRN: https://ssrn.com/abstract=1579923 or http://dx.doi.org/10.2139/ssrn.1579923

Thomas Domenig

Zurcher Kantonalbank ( email )

Zinsresearch
Zurich 8000
Switzerland

Paolo Vanini (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

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