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Option Pricing with Levy-Stable Processes

Alvaro Cartea, Birkbeck College, University of London

Sam Howison, Mathematical Institute, University of Oxford



In this paper we show how to calculate European-style option prices when the log-stock and stock returns processes follow a symmetric Levy-Stable process. We extend our results to price European-style options when the log-stock process follows a skewed Levy-Stable process.

Keywords: Levy-Stable processes, stable Paretian hypothesis, stochastic volatility stable

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