Lattice Approach for Option Pricing under Lévy Processes

Abstract

This article discusses a new lattice approach for pricing options when the underlying asset price process follows the exponential Lévy model. The article proposes a new lattice method that can be applied to a wide range of Lévy processes. Lévy processes include various models, such as Brownian motion, the compound Poisson process, and the infinite intensity jump model with finite and infinite variation. We introduce a versatile algorithm for option pricing in the exponential Lévy process models. Numerical experiments show that the proposed method accurately calculates options prices.