Klingler, Sven1; Kim, Young Shin2; Rachev, Svetlozar T.3; Fabozzi, Frank J.4
1 Department of Finance, Copenhagen Business School2 Karlsruher Institut für Technologie3 Department of Applied Mathematics & Statistics , Stony Brook University4 EDHEC Business School
In this article, we introduce two new six-parameter processes based on time-changing tempered stable distributions and develop an option pricing model based on these processes. This model provides a good fit to observed option prices. To demonstrate the advantages of the new processes, we conduct two empirical studies to compare their performance to other processes that have been used in the literature.
Applied Financial Economics, 2013, Vol 23, Issue 15, p. 1231-1238