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Review of Derivatives Research

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15-01-2021

The value of power-related options under spectrally negative Lévy processes

Author: Jean-Philippe Aguilar

Published in: Review of Derivatives Research | Issue 2/2021

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Abstract

We provide analytical tools for pricing power options with exotic features (capped or log payoffs, gap options etc.) in the framework of exponential Lévy models driven by one-sided stable or tempered stable processes. Pricing formulas take the form of fast converging series of powers of the log-forward moneyness and of the time-to-maturity; these series are obtained via a factorized integral representation in the Mellin space evaluated by means of residues in \(\mathbb {C}\) or \(\mathbb {C}^2\). Comparisons with numerical methods and efficiency tests are also discussed.

previous article Bayesian estimation of the stochastic volatility model with double exponential jumps

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Title: The value of power-related options under spectrally negative Lévy processes
Author: Jean-Philippe Aguilar
Publication date: 15-01-2021
Publisher: Springer US
Published in: Review of Derivatives Research / Issue 2/2021
Print ISSN: 1380-6645
Electronic ISSN: 1573-7144
DOI: https://doi.org/10.1007/s11147-020-09174-0