Scaling and long-range dependence in option pricing III: A fractional version of the Merton model with transaction costs

Xiao-Tian Wang, Hai-Gang Yan, Ming-Ming Tang and En-Hui Zhu

Physica A: Statistical Mechanics and its Applications, 2010, vol. 389, issue 3, 452-458

Abstract: A model for option pricing of fractional version of the Merton model with ‘Hurst exponent’ H being in [1/2,1) is established with transaction costs. In particular, for H∈(1/2,1) the minimal price Cmin(t,St) of an option under transaction costs is obtained, which displays that the timestep δt and the ‘Hurst exponent’ H play an important role in option pricing with transaction costs.

Keywords: Fractional Brownian motion; Transaction costs; Option pricing; Scaling; Jump (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:389:y:2010:i:3:p:452-458

DOI: 10.1016/j.physa.2009.09.044

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