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First Passage Time for Tempered Stable Process and Its Application to Perpetual American Option and Barrier Option Pricing

Authors :
Kim, Young Shin
Source :
Comput Manag Sci (2019) 16: 187-215
Publication Year :
2018

Abstract

In this paper, we will discuss an approximation of the characteristic function of the first passage time for a Levy process using the martingale approach. The characteristic function of the first passage time of the tempered stable process is provided explicitly or by an indirect numerical method. This will be applied to the perpetual American option pricing and the barrier option pricing. Numerical illustrations are provided for the calibrated parameters using the market call and put prices.

Details

Database :
arXiv
Journal :
Comput Manag Sci (2019) 16: 187-215
Publication Type :
Report
Accession number :
edsarx.1801.09362
Document Type :
Working Paper
Full Text :
https://doi.org/10.1007/s10287-018-0326-9