AbstractIn this paper we determine lowest cost strategies for given payoff distributions called cost-efficient
strategies in multivariate exponential Lévy models where the pricing is based on the multivariate Esscher
martingale measure. This multivariate framework allows to deal with dependent price processes as arising
in typical applications. Dependence of the components of the Lévy Process implies an influence even on the
pricing of efficient versions of univariate payoffs.We state various relevant existence and uniqueness results
for the Esscher parameter and determine cost efficient strategies in particular in the case of price processes
driven by multivariate NIG- and VG-processes. From a monotonicity characterization of efficient payoffs we
obtain that basket options are generally inefficient in Lévy markets when pricing is based on the Esscher
measure.We determine efficient versions of the basket options in real market data and show that the proposed
cost efficient strategies are also feasible from a numerical viewpoint. As a result we find that a considerable
efficiency loss may arise when using the inefficient payoffs.
HIGH-ORDER SHORT-TIME EXPANSIONS FOR ATM OPTION PRICES OF EXPONENTIAL LÉVY MODELS
