Time-Changed Lévy Processes and Option Pricing: A Critical Comment

7 Pages Posted: 20 Jun 2019

Date Written: June 14, 2019

Abstract

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 analyzing the measurability of the time changes with respect to the underlying filtration, we show that all models CW proposed for the time changes fail to satisfy this assumption.

Keywords: Lévy process, time changes, asset returns

JEL Classification: G10, G12, G13

Suggested Citation

Fallahgoul, Hasan A and Nam, Kihun, Time-Changed Lévy Processes and Option Pricing: A Critical Comment (June 14, 2019). Available at SSRN: https://ssrn.com/abstract=3404187 or http://dx.doi.org/10.2139/ssrn.3404187

Hasan A Fallahgoul (Contact Author)

Monash University ( email )

Clayton Campus
Victoria, 3800
Australia

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

Kihun Nam

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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