Abstract
Pricing of Look-back Option with Symmetric Lévy Process : A PIDE and its solution
by
Sudip Ratan Chandra
We propose a stochastic model to develop a pricing method using partial integro-
differential equation (PIDE) and its solution expression using Fourier transform for floating type Look-back option based on the Itô-Lévy calculus. The stock price is
driven by a class of infinite activity Lévy processes leading to the market inherently
incomplete, and dynamic hedging is no longer risk free. We first develop a PIDE
for floating Look-back option, and apply the Fourier transform to derive a pricing
expression. Our main contribution is to develop a PIDE with its closed form pricing
expression for the contract. The procedure is easy to implement for all class of Levy
processes. Finally, the model is calibrated with the market data and its accuracy is
presented.
Committee
Workshop
Key Dates
Communication
First Conference Link