Cliquet Option Pricing with Meixner Processes

Modern Stochastics: Theory and Applications, 2018, Vol. 5, No. 1, 81-97

16 Pages Posted: 11 Aug 2017 Last revised: 9 Feb 2020

See all articles by Markus Hess

Markus Hess

Université Libre de Bruxelles (ULB)

Date Written: October 4, 2018

Abstract

We investigate the pricing of cliquet options in a geometric Meixner model. The considered option is of monthly sum cap style while the underlying stock price model is driven by a pure-jump Meixner-Lévy process yielding Meixner distributed log-returns. In this setting, we infer semi-analytic expressions for the cliquet option price by using the probability distribution function of the driving Meixner-Lévy process and by an application of Fourier transform techniques. In an introductory section, we compile various facts on the Meixner distribution and the related class of Meixner-Lévy processes. We also propose a customized measure change preserving the Meixner distribution of any Meixner process.

Keywords: Cliquet option pricing, path-dependent exotic option, equity indexed annuity, log-return of financial asset, Meixner distribution, Meixner-Lévy process, stochastic differential equation, probability measure change, characteristic function, Fourier transform

JEL Classification: G22, D52

Suggested Citation

Hess, Markus, Cliquet Option Pricing with Meixner Processes (October 4, 2018). Modern Stochastics: Theory and Applications, 2018, Vol. 5, No. 1, 81-97, Available at SSRN: https://ssrn.com/abstract=3016326 or http://dx.doi.org/10.2139/ssrn.3016326

Markus Hess (Contact Author)

Université Libre de Bruxelles (ULB) ( email )

CP 210 Boulevard du Triomphe
Brussels, Brussels 1050
Belgium

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