In financial literature many have been the attempts to overcome the option pricing drawbacks that affect the Black and Scholes model. Starting from the Tsallis deformation of the usual exponential function, this paper presents, in a complete market setup, a class of deformed geometric Brownian motions flexible enough to reproduce fat tails and to capture the volatility behavior observed in models that consider both stochastic volatility and jumps.

Option pricing under deformed Gaussian distributions

MORETTO, ENRICO;
2016-01-01

Abstract

In financial literature many have been the attempts to overcome the option pricing drawbacks that affect the Black and Scholes model. Starting from the Tsallis deformation of the usual exponential function, this paper presents, in a complete market setup, a class of deformed geometric Brownian motions flexible enough to reproduce fat tails and to capture the volatility behavior observed in models that consider both stochastic volatility and jumps.
2016
http://www.sciencedirect.com/science/article/pii/S0378437115010146
Derivative pricing; Stochastic volatility; Deformed exponential; Fat tails; Tsallis exponential; Complete markets
Moretto, Enrico; Pasquali, Sara; Trivellato, Barbara
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11383/2045245
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