Journal of Computational Finance

Adjusting exponential Lévy models toward the simultaneous calibration of market prices for crash cliquets

Peter Carr, Ajay Khanna and Dilip B. Madan

  • Near money exponentially extrapolated jump arrival rates too high for crash cliquets. 
  • Completely monotone dampers are employed for tail thinning. 
  • Single name crash cliquets priced by exposure to index crashes.


In this paper, option-calibrated exponential Lévy models are observed to typically overprice crash cliquets.Typical model Lévy tails are then not crash-market consistent. A general tail-thinning strategy is introduced that may be implemented on a class of parametric Lévy models closed under exponential tilting. Implementation on the Carr-Geman-Madan-Yor (CGMY) model leads to the CGAKMY model with a thinning function of (1 + Α | χ |). It is observed that this model adjustment can be crashmarket consistent.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here