Levy under stochastic clock

monlavingia · March 5th, 2006, 8:34 pm

I'm about to embark on my master's thesis and just wanted a little advice on the topic that I am interested in following. I am thinking about looking at pricing using a Levy process (primarily VG but others also) under a stochastic volatility. I would also include comparison with the standard SV models (e.g. Heston). The I'm interested in pricing credit derivatives (probably CDS Options) and was wondering how applicable this is (to Levy SV models) and whether there has been much work on this or whether anyone has views on other interesting products to price.M.

wim · March 8th, 2006, 7:34 pm

For a comparison of Levy with SV and other SV models like Heston : see my paper "A perfect Calibration ! Now What ?" in Wilmott Magazine or in the Wiley book "Exotic Options Pricing and Advanced Levy models"For pricing of and calibration on CDSs under Levy models see papers on my website

monlavingia · March 8th, 2006, 10:59 pm

Thanks, I've been consulting both your books on Levy Proc. They've been very useful!I'm thinking of pricing CDS Options using time-changed levy. I am looking into the feasibility of applying this to the intensity approach.