Modern Stochastics: Theory and Applications

We investigate the pricing of cliquet options in a jump-diffusion model. The considered option is of monthly sum cap style while the underlying stock price model is driven by a drifted Lévy process entailing a Brownian diffusion component as well as compound Poisson jumps. We also derive representations for the density and distribution function of the emerging Lévy process. In this setting, we infer semi-analytic expressions for the cliquet option price by two different approaches. The first one involves the probability distribution function of the driving Lévy process whereas the second draws upon Fourier transform techniques. With view on sensitivity analysis and hedging purposes, we eventually deduce representations for several Greeks while putting emphasis on the Vega.

We investigate the pricing of cliquet options in a geometric Meixner model. The considered option is of monthly sum cap style while the underlying stock price model is driven by a pure-jump Meixner–Lévy process yielding Meixner distributed log-returns. In this setting, we infer semi-analytic expressions for the cliquet option price by using the probability distribution function of the driving Meixner–Lévy process and by an application of Fourier transform techniques. In an introductory section, we compile various facts on the Meixner distribution and the related class of Meixner–Lévy processes. We also propose a customized measure change preserving the Meixner distribution of any Meixner process.