Time for a Change: The Variance Gamma Model and Option Pricing
12 Pages Posted: 12 Jan 2007
Date Written: September 26, 2005
The most widely used option pricing model is the Black-Scholes model. We motivate an alternative option pricing model called the Variance Gamma (VG) model and demonstrate its implementation in the Bloomberg system.
Keywords: Black-Scholes, variance gamma model, skew, kurtosis, volatility smile, option pricing, equity options, time changed Brownian motion
JEL Classification: G13
Suggested Citation: Suggested Citation