A novel analytical technique for the solution of time-fractional Ivancevic option pricing model

Rajarama Mohan Jena, Snehashish Chakraverty and Dumitru Baleanu

Physica A: Statistical Mechanics and its Applications, 2020, vol. 550, issue C

Abstract: The Ivancevic option pricing model is an alternative of the standard Black–Scholes pricing equation, which signifies a controlled Brownian motion related to the nonlinear Schrodinger equation. Even though many researchers have studied the applicability and practicality of this model, but the analytical approach of this model is rarely found in the literature. In this paper, a novel semi-analytical technique called fractional reduced differential transform method has been applied to solve the Schrodinger type option pricing model, which is characterized by the time-fractional derivative. Two problems are explained to validate and prove the effectiveness of the proposed technique. Obtained results are compared with the solution of other existing methods for a particular case. This comparison shows that the attained results are in good agreement with the existing solutions.

Keywords: Black–Scholes model; FRDTM; Ivancevic model; Fractional derivative (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:550:y:2020:i:c:s0378437120301436

DOI: 10.1016/j.physa.2020.124380

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