VALUATION OF EUROPEAN PUT OPTION BY USING THE QUADRATURE METHOD UNDER THE VARIANCE GAMMA PROCESS

Abstract

Dynamic asset pricing model uses the Geometric Brownian Motion process. The Black-Scholes model known as standard model to price European option based on the assumption that underlying asset prices dynamic follows that log returns of asset is normally distributed. In this paper, we introduce a new stochastic process called levy process for pricing options. In this paper, we use the quadrature method to solve a numerical example for pricing options in the Indian context. The illustrations used in this paper for pricing the European style option.  We also try to develop the pricing formula for European put option by using put-call parity and check its relevancy on actual market data and observe some underlying phenomenon.