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Barrier Style Contracts under Lévy Processes: An Alternative Approach

29 Pages Posted: 28 Mar 2013 Last revised: 14 Dec 2015

José Fajardo

Getulio Vargas Foundation

Date Written: November 24, 2014

Abstract

In this paper we present new pricing formulas for some single barrier style contracts of the European type when the underlying process is driven by an important class of Lévy processes, which includes the CGMY model, generalized hyperbolic model and Mexiner model, frequently used in the literature. To achieve this goal we first assume that a symmetry property holds, i.e., we assume that under a change of numéraire the risk neutral distribution does not change, and then we analyze the most realistic asymmetric case.

Keywords: Barrier contracts, Lévy processes,S ymmetry

JEL Classification: C52, G10

Suggested Citation

Fajardo, José, Barrier Style Contracts under Lévy Processes: An Alternative Approach (November 24, 2014). Available at SSRN: https://ssrn.com/abstract=2239427 or http://dx.doi.org/10.2139/ssrn.2239427

José Fajardo (Contact Author)

Getulio Vargas Foundation ( email )

Brazil
55213799 5781 (Phone)

HOME PAGE: http://www.josefajardo.com

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