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Fractional delta hedging strategy for pricing currency options with transaction costs

Foad Shokrollahi

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Abstract: This study deals with the problem of pricing European currency options in discrete time setting, whose prices follow the fractional Black Scholes model with transaction costs. Both the pricing formula and the fractional partial differential equation for European call currency options are obtained by applying the delta-hedging strategy. Some Greeks and the estimator of volatility are also provided. The empirical studies and the simulation findings show that the fractional Black Scholes with transaction costs is a satisfactory model.

Date: 2017-01
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Published in Communications in Mathematical Finance, vol.6, no.1, 2017, 1-20

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