Time-changed Lévy processes and option pricing: a critical comment
56 Pages Posted: 18 Aug 2018 Last revised: 11 Aug 2020
Date Written: August 6, 2018
Carr and Wu (2004), henceforth CW, developed a framework that encompasses almost all of the continuous-time models proposed in the option pricing literature. Their framework hinges on the stopping time property of the time changes. By ana- lyzing the measurability of the time changes with respect to the underlying filtration, we show that many asset price models using correlated time changes fail to satisfy this assumption.
Keywords: Jumps, Time Changes, Business Time
JEL Classification: G10, G12, G13
Suggested Citation: Suggested Citation