The Variance Gamma Self-Decomposable Process in Actuarial Modelling

Files in This Item:
File Description SizeFormat 
WP-10-04.pdf991.96 kBAdobe PDFDownload
Title: The Variance Gamma Self-Decomposable Process in Actuarial Modelling
Authors: O'Sullivan, Conall
Moloney, Michael
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
Keywords: Variance gamma;Regime switching lognormal;Long term equity returns
Subject LCSH: Options (Finance)--Mathematical models
Futures--Econometric models
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Centre for Financial Markets Working Papers

Show full item record

Google ScholarTM

Check


This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.