Option pricing for a logstable asset price model

Authors:
S.R Hurst;E Platen;S.T Rachev
Affiliations:
Centre for Financial Mathematics School of Mathematical Sciences The Australian National University, Canberra ACT 0200, Australia;Centre for Financial Mathematics School of Mathematical Sciences The Australian National University, Canberra ACT 0200, Australia;Department of Statistics and Applied Probability University of California, Santa Barbara Santa Barbara, CA 93106-3110, U.S.A.
Venue:
Mathematical and Computer Modelling: An International Journal
Year:
1999

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Abstract

The paper generalises the celebrated Black and Scholes [1] European option pricing formula for a class of logstable asset price models. The theoretical option prices have the potential to explain the implied volatility smiles evident in the market.