Indifference Pricing of Contingent Claims on NIG L´evy Model
Abstract
We develop an attractive and tractable model to describe the financial
time series of stock prices observed at the Nairobi exchange market
then price financial derivatives on the underlying stock. The stock price
process is assumed to be of exponential L´evy type with normal inverse
Gaussian (NIG) distributed log-returns. We derived the PIDE satisfied
by the option’s price when the pricing measure is chosen by indifference
pricing method for exponential NIG L´evy models, implement its numerical
approximations and compare our results with Esscher transform’s
model.
Citation
Applied Mathematical Sciences, Vol. 6, 2012, no. 47, 2315 - 2326Subject
L´evy processes;Esscher transforms;
Utility indifference pricing;
Partial Integro-Differential equations;
Monte Carlo methods