The short-time asymptotic behavior of option prices for a variety of models with jumps has received much attention in recent years. In this work, a novel secondorder approximation for at-the-money (ATM) option prices is derived for a large class of exponential Lévy models with or without Brownian component. The results hereafter shed new light on the connection between both the volatility of the continuous component and the jump parameters and the behavior of ATM option prices near expiration. In the presence of a Brownian component, the second-order term, in timet, is of the form d 2 t (3−Y)/2 , with d 2 only depending on Y, the degree of jump activity, on σ , the volatility of the continuous component, and on an additional parameter controlling the intensity of the "small" jumps (regardless of their signs). This extends the well-known result that the leading first-order term is σ t 1/2 / √ 2π. In contrast, under a pure-jump model, the dependence on Y and on the separate intensities of negative and positive small jumps are already reflected in the leading term, which is of the form d 1 t 1/Y . The second-order term is shown to be of the formd 2 t and, therefore, its order of decay turns out to be independent of Y. The asymptotic behavior of the corresponding Black-Scholes implied volatilities is also addressed. Our method of proof is based on an integral representation of the option price involving the tail probability of the logreturn process under the share measure and a suitable change of probability measure under which the pure-jump component of the log-return process becomes a Y-stable process. Our approach is sufficiently general to cover a wide class of Lévy processes, which satisfy the latter property and whose Lévy density can be closely approximated by a stable density near the origin. Our numerical results show that the first-order term typically exhibits rather poor performance and that the second-order term can significantly improve the approximation's accuracy, particularly in the absence of a Brownian component.KEY WORDS: exponential Lévy models, CGMY and tempered stable models, short-time asymptotics, at-the-money option pricing, implied volatility.We gratefully acknowledge the constructive and insightful comments provided by two anonymous referees, which significantly contributed to improve the quality of the manuscript. We also thank Victor Rivero for bringing our attention to the formula (3.9) as well as SveinnÓlafsson for pointing out some mistakes in a previous proof of a lemma and other helpful comments. José E.

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We consider a stochastic volatility model with Lévy jumps for a log-return process Z = (Zt) t≥0 of the form Z = U + X, where U = (Ut) t≥0 is a classical stochastic volatility process and X = (Xt) t≥0 is an independent Lévy process with absolutely continuous Lévy measure ν. Small-time expansions, of arbitrary polynomial order, in time-t, are obtained for the tails P (Zt ≥ z), z > 0, and for the call-option prices E e z+Zt − 1 + , z = 0, assuming smoothness conditions on the density of ν away from the origin and a small-time large deviation principle on U . Our approach allows for a unified treatment of general payoff functions of the form ϕ(x)1 x≥z for smooth functions ϕ and z > 0. As a consequence of our tail expansions, the polynomial expansions in t of the transition densities ft are also obtained under mild conditions. AMS 2000 subject classifications: 60G51, 60F99, 91G20, 91G60.

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