Scaling and long range dependence in option pricing, IV: Pricing European options with transaction costs under the multifractional Black–Scholes model

Xiao-Tian Wang

Physica A: Statistical Mechanics and its Applications, 2010, vol. 389, issue 4, 789-796

Abstract: This paper deals with the problem of discrete time option pricing using the multifractional Black–Scholes model with transaction costs. Using a mean self-financing delta hedging argument in a discrete time setting, a European call option pricing formula is obtained. The minimal price of an option under transaction costs is obtained. In addition, we show that scaling and long range dependence have a significant impact on option pricing.

Keywords: Delta hedging; Multifractional Black–Scholes model; Transaction costs; Option pricing; Scaling (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:4:p:789-796

DOI: 10.1016/j.physa.2009.10.032

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