Time-Changed Lévy Processes and Option Pricing: A Critical Comment
7 Pages Posted: 20 Jun 2019
Date Written: June 14, 2019
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: Suggested Citation