Pricing European and Barrier Options in the Fractional Black-Scholes Market

Ciprian Necula

No 20, Advances in Economic and Financial Research - DOFIN Working Paper Series from Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB

Abstract: The aim of this paper is to obtain the valuation formulas for European and barrier options if the underlying of the option contract is supposed to be driven by a fractional Brownian motion with Hurst parameter greater than 0.5. The paper is build upon the framework developed in Necula (2007) for the valuation of derivative products in the fractional Black-Scholes market. We also obtain a reflection principle for the fractional Brownian motion.

Keywords: fractional Brownian motion; fractional Black-Scholes market; the reflection principle for the fractional Brownian motion; mathematical finance; European option; barrier option (search for similar items in EconPapers)
JEL-codes: C02 C60 G12 G13 (search for similar items in EconPapers)
Date: 2008-10
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