A Framework for Derivative Pricing in the Fractional Black-Scholes Market

Ciprian Necula

No 19, Advances in Economic and Financial Research - DOFIN Working Paper Series from Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB

Abstract: The aim of this paper is to develop a framework for evaluating derivatives if the underlying of the derivative contract is supposed to be driven by a fractional Brownian motion with Hurst parameter greater than 0.5. For this purpose we first prove some results regarding the quasi-conditional expectation, especially the behavior to a Girsanov transform. We obtain the risk-neutral valuation formula and the fundamental evaluation equation in the case of the fractional Black-Scholes market.

Keywords: fractional Brownian motion; fractional Black-Scholes market; quasiconditional expectation; mathematical finance; contingent claim (search for similar items in EconPapers)
JEL-codes: C02 C60 G12 G13 (search for similar items in EconPapers)
Date: 2008-10
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Citations: View citations in EconPapers (1)

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