Numerical analysis on local risk-minimization forexponential Lévy models

2015/06/12 by Arai, Takuji, Imai, Yuto, Suzuki, Ryoichi
#Computational Finance (q-fin.CP) #FOS: Economics and business

paper · doi:10.48550/arxiv.1506.03898

Abstract

We illustrate how to compute local risk minimization (LRM) of call options for exponential Lévy models. We have previously obtained a representation of LRM for call options; here we transform it into a form that allows use of the fast Fourier transform method suggested by Carr & Madan. In particular, we consider Merton jump-diffusion models and variance gamma models as concrete applications.

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