Pricing European Options under Stochastic Volatility Models: Case of five-Parameter Variance-Gamma Process

The paper builds a Variance-Gamma (VG) model with five parameters: location ($μ$), symmetry ($δ$), volatility ($σ$), shape ($α$), and scale ($θ$); and studies its application to the pricing of European options. The results of our analysis show that the five-parameter VG model is a stochastic volatility model with a $Γ(α, θ)$ Ornstein-Uhlenbeck type process; the associated Lévy density of the VG model is a KoBoL family of order $ν=0$, intensity $α$, and steepness parameters $\fracδ{σ^2} - \sqrt{\...