Scaling and long range dependence in option pricing, IV: Pricing European options with transaction costs under the multifractional Black–Scholes model

This paper deals with the problem of discrete time option pricing using the multifractional Black–Scholes model with transaction costs. Using a mean self-financing delta hedging argument in a discrete time setting, a European call option pricing formula is obtained. The minimal price of an option under transaction costs is obtained. In addition, we show that scaling and long range dependence have a significant impact on option pricing.

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Year of publication:	2010
Authors:	Wang, Xiao-Tian
Published in:	Physica A: Statistical Mechanics and its Applications. - Elsevier, ISSN 0378-4371. - Vol. 389.2010, 4, p. 789-796
Publisher:	Elsevier
Subject:	Delta hedging \| Multifractional Black–Scholes model \| Transaction costs \| Option pricing \| Scaling

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

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