A Modified Black-Scholes-Merton Model for Option Pricing

Paula Morales-Bañuelos, Nelson Muriel and Guillermo Fernández-Anaya
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Paula Morales-Bañuelos: Departamento de Estudios Empresariales, Universidad Iberoamericana Ciudad de México, Mexico City 01219, Mexico
Nelson Muriel: Departamento de Física y Matemáticas, Universidad Iberoamericana Ciudad de México, Mexico City 01219, Mexico
Guillermo Fernández-Anaya: Departamento de Física y Matemáticas, Universidad Iberoamericana Ciudad de México, Mexico City 01219, Mexico

Mathematics, 2022, vol. 10, issue 9, 1-16

Abstract: Financial derivatives have grown in importance over the last 40 years with futures and options being actively traded on a daily basis throughout the world. The need to accurately price such financial instruments has, thus, also increased, which has given rise to several mathematical models among which is that of Black, Scholes, and Merton whose wide acceptance is partly justified by its ability to price derivatives in mature and well-developed markets. For instruments traded in emerging markets, however, the accurateness of the BSM model is unproven and new proposals need be made to face the pricing challenge. In this paper we develop a model, inspired in conformable calculus, providing greater flexibilities for these markets. After developing the theoretical aspects of the model, we present an empirical application.

Keywords: Black–Scholes–Merton; conformable calculus; European options; derivatives pricing (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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