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A new class of distortion operators based on quantile function is proposed for pricing options. It is shown that option prices obtained with our distortion operators are just the prices… Click to show full abstract
A new class of distortion operators based on quantile function is proposed for pricing options. It is shown that option prices obtained with our distortion operators are just the prices under mean correcting martingale measure in exponential Lévy models. In particular, Black-Scholes formula can be recuperated by our distortion operator. Simulation analysis shows that our distortion operator is superior to normal distortion operator and NIG distortion operator.
Keywords:
quantile function;
based quantile;
distortion;
distortion operator
Journal Title: Mathematical Problems in Engineering
Year Published: 2019
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Journal Title: Mathematical Problems in Engineering
Year Published: 2019
Link to full text (if available)
Share on Social Media: Sign Up to like & get
recommendations!