Eur. Phys. J. B (2017) 90: 179
https://doi.org/10.1140/epjb/e2017-80112-x

Regular Article

A non-Gaussian option pricing model based on Kaniadakis exponential deformation

¹ Dipartimento di Economia, Universià dell’Insubria, via Monte Generoso 71, 21100 Varese, Italy
² CNR-IMATI, via A. Corti 12, 20133 Milano, Italy
³ Dipartimento di Matematica, Politecnico di Torino, Corso Duca degli Abruzzi 24, 10129 Torino, Italy

^a e-mail: enrico.moretto@uninsubria.it

Received: 23 February 2017
Received in final form: 12 June 2017
Published online: 2 October 2017

Abstract

A way to make financial models effective is by letting them to represent the so called “fat tails”, i.e., extreme changes in stock prices that are regarded as almost impossible by the standard Gaussian distribution. In this article, the Kaniadakis deformation of the usual exponential function is used to define a random noise source in the dynamics of price processes capable of capturing such real market phenomena.