Option price models such as the Black-Sholes and the binomial tree models rely on the assumption that the underlying asset price dynamics follow the GBM. Modeling the asset price dynamics by using the GBM implies that the log return of assets at particular time is normally distributed. Many studies on real data in the markets showed that the GBM fails to capture the characteristic features of asset price dynamics that exhibit heavy tails and excess kurtosis. In our study, a class of Levy process, which is called a variance gamma VG process, performs much better than GBM model for modeling the dynamics of those stock indices. However, valuation of financial instruments, e. Here, we propose a new approach to the valuation of European option.
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During the last decade, financial models based on jump processes have acquired increasing popularity in risk management and option pricing. Much has been published on the subject, but the technical nature of most papers makes them difficult for nonspecialists to understand, and the mathematical tools required for applications can be intimidating. Financial Modelling with Jump Processes shows that this is not so.
It provides a self-contained overview of the theoretical, numerical, and empirical aspects involved in using jump processes in financial modelling, and it does so in terms within the grasp of nonspecialists. The introduction of new mathematical tools is motivated by their use in the modelling process, and precise mathematical statements of results are accompanied by intuitive explanations.
The authors illustrate the mathematical concepts with many numerical and empirical examples and provide the details of numerical implementation of pricing and calibration algorithms. This book demonstrates that the concepts and tools necessary for understanding and implementing models with jumps can be more intuitive that those involved in the Black Scholes and diffusion models.
If you have even a basic familiarity with quantitative methods in finance, Financial Modelling with Jump Processes will give you a valuable new set of tools for modelling market fluctuations.
This book is the first complete treatment of markets rendered incomplete by the reality of jumps in prices and volatilities. If I were you, I would pounce. The authors work at a comfortable mathematical pace choosing carefully which proofs to include and exclude and never losing sight of financial interpretation and application.
Andreas E. Read it. You will learn much.
ISBN 13: 9781584884132
Balabar Kump you have even a basic familiarity with quantitative methods in finance, Financial Modelling with Jump Processes will give you a valuable new set of tools for modelling market fluctuations. From Theory To Practice. Financial Modelling with Jump Processes shows that this is not so. Description Table of Contents Reviews.