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2011•Journal of Hefei University of TechnologyRequires access

Asian option pricing by fractional Brownian motion

DU Xue-qiao

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Abstract

Without market assumptions,Mogens Bladt and Tina Hviid Rydberg use merely probability measure of price process and actuarial considerations for pricing options.Based on their study and using the method of actuarial pricing,this paper obtains Asian option pricing formula when underlying assets are driven by fractional Brownian motion.And the paper concludes that the geometric Brownian motion is a special case of fractional Brownian motion.Then the classical model of option pricing can be generalized based on fractional Brownian motion.

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What this paper is about

Without market assumptions,Mogens Bladt and Tina Hviid Rydberg use merely probability measure of price process and actuarial considerations for pricing options.Based on their study and using the method of actuarial pricing,this paper obtains Asian option pricing formula when underlying assets are driven by fractional Brownian motion.And the paper concludes that the geometric Brownian motion is a special case of fractional Brownian motion.Then the classical model of option pricing can be generalized based on fractional Brownian motion.

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Available abstract

Without market assumptions,Mogens Bladt and Tina Hviid Rydberg use merely probability measure of price process and actuarial considerations for pricing options.Based on their study and using the method of actuarial pricing,this paper obtains Asian option pricing formula when underlying assets are driven by fractional Brownian motion.And the paper concludes that the geometric Brownian motion is a special case of fractional Brownian motion.Then the classical model of option pricing can be generalized based on fractional Brownian motion.

Key concepts: Fractional Brownian motion, Geometric Brownian motion, Diffusion process, Brownian motion, Brownian excursion, Mathematics, Valuation of options, Risk-neutral measure

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