Abstract
In this paper we discuss foreign-exchange option pricing in conditionally Gaussian models, namely in the variance-gamma and in the normal-inverse Gaussian models. It happens that in the both models closed-form pricing is attainable. The used method developes the one of the work by Madan et al. (Eur Finance Rev 2:79–105, 1998) where the price of the European call is primarily derived. The obtained formulas are based on values of the Gauss and the Appell hypergeometric functions.
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Ivanov, R.V., Ano, K. On exact pricing of FX options in multivariate time-changed Lévy models. Rev Deriv Res 19, 201–216 (2016). https://doi.org/10.1007/s11147-016-9120-4
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DOI: https://doi.org/10.1007/s11147-016-9120-4
Keywords
- Time-changed Lévy process
- Variance-gamma process
- Normal-inverse Gaussian process
- Foreign-exchange option
- Pricing
- Hypergeometric function