The closed-form option pricing formulas under the sub-fractional Poisson volatility models

XiaoTian Wang, ZiJian Yang, PiYao Cao and ShiLin Wang

Chaos, Solitons & Fractals, 2021, vol. 148, issue C

Abstract: A new fractional process called the sub-fractional Poisson process NH(t) is proposed, which has continuous sample paths, long- memory, leptokurtosis and heavy tail distribution, is of convenience to price options and simulate the variance process of risk asset return. Based on the sub-fractional Poisson process NH(t) the new fractional variance processes have been proposed, which may capture the skewness and the long-memory as well as mean-reverting in the stock price volatilities. In particular, the characteristic function method for option pricing is given, and the analytical formulas for European option price C(t,St) have been obtained under the risk-neutral probability measure.

Keywords: Option pricing; Characteristic function; Stochastic volatility; Long-memory; Hurst exponent (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:148:y:2021:i:c:s0960077921003660

DOI: 10.1016/j.chaos.2021.111012

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