Fractional constant elasticity of variance model

Ngai Hang Chan and Chi Tim Ng

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Abstract: This paper develops a European option pricing formula for fractional market models. Although there exist option pricing results for a fractional Black-Scholes model, they are established without accounting for stochastic volatility. In this paper, a fractional version of the Constant Elasticity of Variance (CEV) model is developed. European option pricing formula similar to that of the classical CEV model is obtained and a volatility skew pattern is revealed.

Date: 2007-02
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Published in IMS Lecture Notes Monograph Series 2006, Vol. 52, 149-164

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:math/0702810

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