DOI: https://doi.org/10.14710/medstat.14.2.183-193

VARIANCE GAMMA PROCESS WITH MONTE CARLO SIMULATION AND CLOSED FORM APPROACH FOR EUROPEAN CALL OPTION PRICE DETERMINATION

*Abdul Hoyyi orcid scopus  -  Department of Mathematics, Gadjah Mada University, Indonesia
Abdurakhman Abdurakhman  -  Department of Mathematics, Gadjah Mada University, Indonesia
Dedi Rosadi  -  Department of Mathematics, Gadjah Mada University, Indonesia
Open Access Copyright (c) 2021 MEDIA STATISTIKA under http://creativecommons.org/licenses/by-nc-sa/4.0.

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Abstract
The Option is widely applied in the financial sector.  The Black-Scholes-Merton model is often used in calculating option prices on a stock price movement. The model uses geometric Brownian motion which assumes that the data is normally distributed. However, in reality, stock price movements can cause sharp spikes in data, resulting in nonnormal data distribution. So we need a stock price model that is not normally distributed. One of the fastest growing stock price models today is the  process exponential model. The  process has the ability to model data that has excess kurtosis and a longer tail (heavy tail) compared to the normal distribution. One of the members of the  process is the Variance Gamma (VG) process. The VG process has three parameters which each of them, to control volatility, kurtosis and skewness. In this research, the secondary data samples of options and stocks of two companies were used, namely zoom video communications, Inc. (ZM) and Nokia Corporation (NOK).  The price of call options is determined by using closed form equations and Monte Carlo simulation. The Simulation was carried out for various  values until convergent result was obtained.
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Keywords: Stochastic process; Black-Scholes-Merton; Le ̀vy process; Variance Gamma; Monte Carlo simulation

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Section: Articles
Language : EN
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