Time-changed geometric fractional Brownian motion and option pricing with transaction costs

Hui Gu, Jin-Rong Liang and Yun-Xiu Zhang

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 15, 3971-3977

Abstract: This paper deals with the problem of discrete time option pricing by a fractional subdiffusive Black–Scholes model. The price of the underlying stock follows a time-changed geometric fractional Brownian motion. By a mean self-financing delta-hedging argument, the pricing formula for the European call option in discrete time setting is obtained.

Keywords: Option pricing; Transaction costs; Delta-hedging; Time-changed process; Inverse α-stable subordinator (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:15:p:3971-3977

DOI: 10.1016/j.physa.2012.03.020

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