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Risky asset models with tempered stable fractal activity time

Kerss, Alexander Douglas, Leonenko, Nikolai and Sikorskii, A. 2014. Risky asset models with tempered stable fractal activity time. Stochastic Analysis and Applications 32 (4) , pp. 642-663. 10.1080/07362994.2014.913183

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Abstract

Two constructions of fractal activity time in the fractal activity time geometric Brownian motion (FATGBM) model for a risky asset are discussed. Both constructions produce tractable dependence structure that includes long-range dependence. One construction uses Ornstein-Uhlenbeck type processes and leads to stationary log returns with exact normal tempered stable distribution and pricing formula that is based on the asymptotic self-similarity of the activity time. The second construction uses convoluted subordinator with Holmgren-Liouville kernel and leads to exact pricing formula that is based on exact tempered stable distribution of the activity time. Option prices computed using our model and pricing formulae are remarkably close to the real market values.

Item Type: Article
Date Type: Published Online
Status: Published
Schools: Mathematics
Publisher: Taylor and Francis
ISSN: 0736-2994
Date of Acceptance: 4 April 2014
Last Modified: 05 Mar 2019 14:59
URI: http://orca.cf.ac.uk/id/eprint/60856

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