Time for a Change: The Variance Gamma Model and Option Pricing

12 Pages Posted: 12 Jan 2007

See all articles by Harvey J. Stein

Harvey J. Stein

Bloomberg L.P.; Columbia University - Department of Mathematics

Peter Carr

New York University Finance and Risk Engineering

Apollo Hogan

Bloomberg L.P. - R&D

Date Written: September 26, 2005

Abstract

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

Stein, Harvey J. and Carr, Peter P. and Hogan, Apollo, Time for a Change: The Variance Gamma Model and Option Pricing (September 26, 2005). Available at SSRN: https://ssrn.com/abstract=956625 or http://dx.doi.org/10.2139/ssrn.956625

Harvey J. Stein (Contact Author)

Bloomberg L.P. ( email )

731 Lexington Avenue
New York, NY 10022
United States
212 617 3059 (Phone)

Columbia University - Department of Mathematics ( email )

New York, NY
United States

Peter P. Carr

New York University Finance and Risk Engineering ( email )

6 MetroTech Center
Brooklyn, NY 11201
United States
9176217733 (Phone)

HOME PAGE: http://engineering.nyu.edu/people/peter-paul-carr

Apollo Hogan

Bloomberg L.P. - R&D ( email )

Tel Aviv, 61336
Israel

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