Scaling and long-range dependence in option pricing III: A fractional version of the Merton model with transaction costs

A model for option pricing of fractional version of the Merton model with ‘Hurst exponent’ H being in [1/2,1) is established with transaction costs. In particular, for H∈(1/2,1) the minimal price Cmin(t,St) of an option under transaction costs is obtained, which displays that the timestep δt and the ‘Hurst exponent’ H play an important role in option pricing with transaction costs.

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Year of publication:	2010
Authors:	Wang, Xiao-Tian ; Yan, Hai-Gang ; Tang, Ming-Ming ; Zhu, En-Hui
Published in:	Physica A: Statistical Mechanics and its Applications. - Elsevier, ISSN 0378-4371. - Vol. 389.2010, 3, p. 452-458
Publisher:	Elsevier
Subject:	Fractional Brownian motion \| Transaction costs \| Option pricing \| Scaling \| Jump

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011058111