Exotic Option Pricing and Advanced Lévy Models

Since around the turn of the millennium there has been a general acceptance that one of the more practical improvements one may make in the light of the shortfalls of the classical Black-Scholes model is to replace the underlying source of randomness, a Brownian motion, by a L vy process. Working with L vy processes allows one to capture desirable distributional characteristics in the stock returns. In addition, recent work on L vy processes has led to the understanding of many probabilistic and analytical properties, which make the processes attractive as mathematical tools. At the same time, exotic derivatives are gaining increasing importance as financial instruments and are traded nowadays in large quantities in OTC markets. The current volume is a compendium of chapters, each of which consists of discursive review and recent research on the topic of exotic option pricing and advanced L vy markets, written by leading scientists in this field. In recent years, L vy processes have leapt to the fore as a tractable mechanism for modeling asset returns. Exotic option values are especially sensitive to an accurate portrayal of these dynamics. This comprehensive volume provides a valuable service for financial researchers everywhere by assembling key contributions from the world's leading researchers in the field. Peter Carr, Head of Quantitative Finance, Bloomberg LP. This book provides a front-row seat to the hottest new field in modern finance: options pricing in turbulent markets. The old models have failed, as many a professional investor can sadly attest. So many of the brightest minds in mathematical finance across the globe are now in search of new, more accurate models. Here, in one volume, is a comprehensive selection of this cutting-edge research. Richard L. Hudson, former Managing Editor of The Wall Street Journal Europe, and co-author with Benoit B. Mandelbrot of The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward

Since around the turn of the millennium there has been a generalacceptance that one of the more practical improvements one may makein the light of the shortfalls of the classical Black-Scholes modelis to replace the underlying source of randomness, a Brownianmotion, by a Lévy process. Working with Lévy processesallows one to capture desirable distributional characteristics inthe stock returns. In addition, recent work on Lévy processeshas led to the understanding of many probabilistic and analyticalproperties, which make the processes attractive as mathematicaltools. At the same time, exotic derivatives are gaining increasingimportance as financial instruments and are traded nowadays inlarge quantities in OTC markets. The current volume is a compendiumof chapters, each of which consists of discursive review and recentresearch on the topic of exotic option pricing and advancedLévy markets, written by leading scientists in this field.In recent years, Lévy processes have leapt to the fore as atractable mechanism for modeling asset returns. Exotic optionvalues are especially sensitive to an accurate portrayal of thesedynamics. This comprehensive volume provides a valuable service forfinancial researchers everywhere by assembling key contributionsfrom the world's leading researchers in the field. Peter Carr, Headof Quantitative Finance, Bloomberg LP.This book provides a front-row seat to the hottest new field inmodern finance: options pricing in turbulent markets. The oldmodels have failed, as many a professional investor can sadlyattest. So many of the brightest minds in mathematical financeacross the globe are now in search of new, more accurate models.Here, in one volume, is a comprehensive selection of thiscutting-edge research. Richard L. Hudson, former Managing Editor ofThe Wall Street Journal Europe, and co-author with Benoit B.Mandelbrot of The (Mis)Behaviour of Markets: A Fractal View ofRisk, Ruin and Reward