Pricing options is an important activity in quantitative finance for financial engineering purpose. Exotic options are class of options with nonstandard features serving market segments: specific hedging need, tax, accounting, legal, regulatory requirements or offer unique payoffs in particular market circumstances. The introduction of Levy process into pricing procedure is a realistic reflection to the heavy tail property of returns of financial assets which the Wiener process is unable to capture. Exotic options can be priced with Black-Scholes-like formula, solving SDE, solving Black-Scholes-like PDE, tree-based approach, Fourier transform based methods or simulation. As there may not exist a close-form formula for pricing, finding a fast and accurate numerical method for pricing options is more than desirable.
Literatura:
- Jia, J., Lai, Y., Li, L., & Tan, V. (2020). Exotic options pricing under special Lévy process models: A biased control variate method approach. Finance Research Letters, 34, 101249.
- Lars Kirkby, J. (2018). American and exotic option pricing with jump diffusions and other Levy processes. Journal of Computational Finance, 22(3).
- Tran, Q. V. Kukal, J. (2021). A novel heavy tail distribution of logarithmic returns of cryptocurrencies. Finance Research Letters, 102574.