The Wiener-Hopf Factorization for Pricing Options Made Easy

Abstract

The paper suggest a new approach to pricing barrier options under pure non-Gaussian Levy processes with jumps of finite variation. The key idea behind the method to represent the process under consideration as a difference between subordinators (increasing Levy processes). Such splitting rule applied to the process at exponentially distributed randomized time points gives us the possibility to find the option price by analytically solving a sequence of simple Wiener-Hopf equations.