Variance Gamma Process and the Correction of Volatility Skew in Stock Option Pricing
Xi Wei · Systems Engineering · 2003
This paper introduces a modification of Black-Scholes Option Pricing Model to correct the volatility skew of Black-Scholes Option Pricing Model on stock option. The modification is replacing the Brownian motion process in the Black-Scholes Option Pricing Model by the variance gamma process. An empirical test for the corresponding option pricing performance basing the close form solution is gived.