Fractional European option pricing model
Xue Hong
Abstract
Xue Hong
Abstract
Using partial differential equation method,the result of European option pricing is generalized.In this paper,it was supposed that the riskless interest rate,the volatility rate and the stock dividend rate are time function.By the self-financing strategy and Ito formula of fractional Brownian motion,the general Black-Scholes partial differential equations for European claim and pricing formula for European option are obtained.
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Using partial differential equation method,the result of European option pricing is generalized.In this paper,it was supposed that the riskless interest rate,the volatility rate and the stock dividend rate are time function.By the self-financing strategy and Ito formula of fractional Brownian motion,the general Black-Scholes partial differential equations for European claim and pricing formula for European option are obtained.
Key concepts: Black–Scholes model, Fractional Brownian motion, Valuation of options, Finite difference methods for option pricing, Mathematics, Partial differential equation, Interest rate, Economics