The Variance Gamma Self-Decomposable Process in Actuarial Modelling
|Title:||The Variance Gamma Self-Decomposable Process in Actuarial Modelling||Authors:||O'Sullivan, Conall
|Permanent link:||http://hdl.handle.net/10197/2565||Date:||10-Jun-2010||Abstract:||A scaled self-decomposable stochastic process put forward by Carr, Geman, Madan and Yor (2007) is used to model long term equity returns and options prices. This parsimonious model is compared to a number of other one-dimensional continuous time stochastic processes (models) that are commonly used in finance and the actuarial sciences. The comparisons are conducted along three dimensions: the models ability to fit monthly time series data on a number of different equity indices; the models ability to fit the tails of the times series and the models ability to calibrate to index option prices across strike price and maturities. The last criteria is becoming increasingly important given the popularity of capital gauranteed products that contain long term imbedded options that can be (at least partially) hedged by purchasing short term index options and rolling them over or purchasing longer term index options. Thus we test if the models can reproduce a typical implied volatility surface seen in the market.||Funding Details:||Not applicable||Type of material:||Working Paper||Publisher:||University College Dublin. School of Business. Centre for Financial Markets||Series/Report no.:||Centre for Financial Markets working paper series; WP-10-04||Keywords:||Variance gamma; Regime switching lognormal; Long term equity returns||Subject LCSH:||Options (Finance)--Mathematical models
|Other versions:||http://www.ucd.ie/bankingfinance/docs/wp/WP-10-04.pdf||Language:||en||Status of Item:||Not peer reviewed|
|Appears in Collections:||Centre for Financial Markets Working Papers|
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