Indifference Pricing of Contingent Claims on NIG L´evy Model

Abstract

We develop an attractive and tractable model to describe the financial time series of stock prices observed at the Nairobi exchange market then price financial derivatives on the underlying stock. The stock price process is assumed to be of exponential L´evy type with normal inverse Gaussian (NIG) distributed log-returns. We derived the PIDE satisfied by the option’s price when the pricing measure is chosen by indifference pricing method for exponential NIG L´evy models, implement its numerical approximations and compare our results with Esscher transform’s model.