An Empirical Examination of the Variance‐Gamma Model for Foreign Currency Options*

Daal, Elton; Madan, Dilip B.

doi:10.1086/497039

Cited by 55 publications

(42 citation statements)

References 18 publications

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“…Madan et al (1998) conclude that Variance Gamma option pricing reduces the pricing bias -in contrast to the Black-Scholes model -as the VG process covers the excess kurtosis, which is a result of jumps. Daal and Madan (2005) use this new idea for an empirical examination of the Variance Gamma option pricing model, the traditional Black-Scholes model and Merton's (1976) jump diffusion model for foreign currency options. They reaffirm Madan and Seneta's (1990) findings that the Variance Gamma option pricing model performs better than the others do.…”

Section: Introductionmentioning

confidence: 99%

Modeling share returns - an empirical study on the Variance Gamma model

2015

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Due to the fact that there has been only little research on some essential issues of the Variance Gamma (VG) process, we have recognized a gap in literature as to the performance of the various estimation methods for modeling empirical share returns. While some papers present only few estimated parameters for a very small, selected empirical database, Finlay and Seneta (2008) compare most of the possible estimation methods using simulated data. In contrast to Finlay and Seneta (2008) we utilize a broad, daily, and empirical data set consisting of the stocks of each company listed on the DOW JONES over the period from 1991 to 2011. We also apply a regime switching model in order to identify normal and turbulent times within our data set and fit the VG process to the data in the respective period. We find out that the VG process parameters vary over time, and in accordance with the regime switching model, we recognize significantly increasing fitting rates which are due to the chosen periods.

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Section: Introductionmentioning

confidence: 99%

Modeling share returns - an empirical study on the Variance Gamma model

2015

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“…Among others, let us mention the papers by Daal and Madan (2005), Finlay and Seneta (2006), Linders and Stassen (2016), Luciano et al (2016), Luciano and Schoutens (2006), Moosbrucker (2006), Mozumder et al (2015), Rathgeber et al (2016), and Wallmeier and Diethelm (2012), where the variance-gamma distribution is confirmed as a very good model to make out the statistics. For approximations of processes by the variance-gamma one, see Eichelsbacher and Thäle (2015).…”

Section: Introductionmentioning

confidence: 99%

A Credit-Risk Valuation under the Variance-Gamma Asset Return

Иванов

2018

Risks

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This paper considers risks of the investment portfolio, which consist of distributed mortgages and sold European call options. It is assumed that the stream of the credit payments could fall by a jump. The time of the jump is modeled by the exponential distribution. We suggest that the returns on stock are variance-gamma distributed. The value at risk, the expected shortfall and the entropic risk measure for this portfolio are calculated in closed forms. The obtained formulas exploit the values of generalized hypergeometric functions.

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“…We refer to Hirsa and Madan [18] and Almendral and Oosterlee [1] for the American-style option pricing in the variance-gamma model. The most recent statistical applications of the use of the variance-gamma distribution for the modeling of stock returns are made in Daal and Madan [9] and Rathgeber, Stadler and Stöckl [33]. The method of closed-form solutions by Madan, Carr and Chang [27] was further developed in Ivanov and Ano [21] and Ivanov and Temnov [22].…”

Section: Introductionmentioning

confidence: 99%

On risk measuring in the variance-gamma model

Иванов

2017

Statistics &Amp; Risk Modeling

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Abstract:In this paper, we discuss the problem of calculating the primary risk measures in the variancegamma model. A portfolio of investments in a one-period setting is considered. It is supposed that the investment returns are dependent on each other. In terms of the variance-gamma model, we assume that there are relations in both groups of the normal random variables and the gamma stochastic volatilities. The value at risk, the expected shortfall and the entropic monetary risk measures are discussed. The obtained analytical expressions are based on values of hypergeometric functions.

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An Empirical Examination of the Variance‐Gamma Model for Foreign Currency Options*

Cited by 55 publications

References 18 publications

Modeling share returns - an empirical study on the Variance Gamma model

Modeling share returns - an empirical study on the Variance Gamma model

A Credit-Risk Valuation under the Variance-Gamma Asset Return

On risk measuring in the variance-gamma model

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