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Option pricing under deformed Gaussian distributions

Author

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  • Moretto, Enrico
  • Pasquali, Sara
  • Trivellato, Barbara
Abstract
In financial literature many have been the attempts to overcome the option pricing drawbacks that affect the Black and Scholes model. Starting from the Tsallis deformation of the usual exponential function, this paper presents, in a complete market setup, a class of deformed geometric Brownian motions flexible enough to reproduce fat tails and to capture the volatility behavior observed in models that consider both stochastic volatility and jumps.

Suggested Citation

  • Moretto, Enrico & Pasquali, Sara & Trivellato, Barbara, 2016. "Option pricing under deformed Gaussian distributions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 446(C), pages 246-263.
    • Handle: RePEc:eee:phsmap:v:446:y:2016:i:c:p:246-263
    DOI: 10.1016/j.physa.2015.11.026
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    References listed on IDEAS

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