Non-Gaussian analytic option pricing: a closed formula for the L\'evy-stable model

TL;DR

This paper derives a closed-form, rapidly converging series formula for pricing European options under Le9vy-stable models with negative asymmetry, enabling accurate and straightforward valuation without numerical methods.

Contribution

It introduces an explicit, closed-form series formula for Le9vy-stable option pricing, simplifying calculations and broadening practical applicability.

Findings

The formula converges rapidly, providing high-accuracy option prices.

Comparison shows the formula outperforms traditional numerical methods in efficiency.

The approach is accessible to practitioners without advanced mathematical background.

Abstract

We establish an explicit pricing formula for the class of L\'evy-stable models with maximal negative asymmetry (Log-L\'evy model with finite moments and stability parameter $1<\alpha\leq 2$) in the form of rapidly converging series. The series is obtained with help of Mellin transform and the residue theory in $\mathbb{C}^2$. The resulting formula enables the straightforward evaluation of an European option with arbitrary accuracy without the use of numerical techniques. The formula can be used by any practitioner, even if not familiar with the underlying mathematical techniques. We test the efficiency of the formula, and compare it with numerical methods.