A Computational Method Based on the Moving Least-Squares Approach for Pricing Double Barrier Options in a Time-Fractional Black–Scholes Model

Ahmad Golbabai () and Omid Nikan ()
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Ahmad Golbabai: Iran University of Science and Technology
Omid Nikan: Iran University of Science and Technology

Computational Economics, 2020, vol. 55, issue 1, No 5, 119-141

Abstract: Abstract The mathematical modeling in trade and finance issues is the key purpose in the computation of the value and considering option during preferences in contract. This paper investigates the pricing of double barrier options when the price change of the underlying is considered as a fractal transmission system. Due to the outstanding memory effect present in the fractional derivatives, approximating financial options with regards to their hereditary characteristics can be well interpreted and stated. Motivated by the reason mentioned, relatively reliable and also efficient numerical approaches have to be found while facing with fractional differential equations. The main objective of the current paper is to obtain the approximation solution of the time fractional Black–Scholes model of order $$0

Keywords: Time fractional Black–Scholes model; Double barrier option; MLS method; Stability; Convergence; 34K37; 97N50; 91G80 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s10614-019-09880-4

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