Option pricing with regulated fractional Brownian motion

F. Aldabe, G. Barone‐Adesi and R. J. Elliott

Applied Stochastic Models and Data Analysis, 1998, vol. 14, issue 4, 285-294

Abstract: Standard and fractional Brownian motions are known to be unsatisfactory models of asset prices. A new class of continuous‐time stochastic processes, RFBM, is proposed to remedy some of the shortcomings of current models. RFBM lead to valuation formulas similar to Black–Scholes, but with volatility increasing with time to maturity. The arbitrage problem of fractional Brownian motion is removed. Copyright © 1998 John Wiley & Sons, Ltd.

Date: 1998
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https://doi.org/10.1002/(SICI)1099-0747(199812)14:43.0.CO;2-R

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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmda:v:14:y:1998:i:4:p:285-294

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