The purpose of this article is to study the rational evaluation of European options price when the underlying price process is described by a time-change Lévy process. European option pricing formula is obtained under the minimal entropy martingale measure (MEMM) and applied to several examples of particular time-change Lévy processes. It can be seen that the framework in this paper encompasses the Black-Scholes model and almost all of the models proposed in the subordinated market.
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Chen, X., Wan, Jp. Option Pricing for Time-Change Exponential Lévy Model Under Memm. Acta Mathematicae Applicatae Sinica, English Series 23, 651–664 (2007). https://doi.org/10.1007/s10255-007-0403
- Option pricing
- Lévy processes
2000 MR Subject Classification