Valuation of exotic options in the framework of Levy processes

Journal Article · Wed Dec 18 00:00:00 EST 2013 · AIP Conference Proceedings

DOI:https://doi.org/10.1063/1.4854743· OSTI ID:22262771

Milev, Mariyan; Georgieva, Svetla; Markovska, Veneta ^[1]

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1. Department of Mathematics and Physics, UFT-Plovdiv, bul. Maritza 26, 4002 Plovdiv (Bulgaria)

In this paper we explore a straightforward procedure to price derivatives by using the Monte Carlo approach when the underlying process is a jump-diffusion. We have compared the Black-Scholes model with one of its extensions that is the Merton model. The latter model is better in capturing the market’s phenomena and is comparative to stochastic volatility models in terms of pricing accuracy. We have presented simulations of asset paths and pricing of barrier options for both Geometric Brownian motion and exponential Levy processes as it is the concrete case of the Merton model. A desired level of accuracy is obtained with simple computer operations in MATLAB for efficient computational time.

• OSTI ID: 22262771
• Journal Information: AIP Conference Proceedings, Vol. 1570, Issue 1; Conference: AMEE 13: 39. international conference on applications of mathematics in engineering and economics, Sozopol (Bulgaria), 8-13 Jun 2013; Other Information: (c) 2013 AIP Publishing LLC; Country of input: International Atomic Energy Agency (IAEA); ISSN 0094-243X
• Country of Publication: United States
• Language: English

Related Subjects

97 MATHEMATICAL METHODS AND COMPUTING
ACCURACY
BROWNIAN MOVEMENT
CONCRETES
MONTE CARLO METHOD
SIMULATION
STOCHASTIC PROCESSES