Option Pricing for Time-Change Exponential Lévy Model Under Memm

AbstractThe purpose of this article is to study the rational evaluation of European options price when the underlying price process is described by a time-change Lévy process. European option pricing formula is obtained under the minimal entropy martingale measure (MEMM) and applied to several examples of particular time-change Lévy processes. It can be seen that the framework in this paper encompasses the Black-Scholes model and almost all of the models proposed in the subordinated market.