2024
A multifractional option pricing formula
ARANEDA, Axel A.Basic information
Original name
A multifractional option pricing formula
Authors
ARANEDA, Axel A. (152 Chile, guarantor, belonging to the institution)
Edition
FLUCTUATION AND NOISE LETTERS, SINGAPORE, WORLD SCIENTIFIC PUBL CO PTE LTD, 2024, 0219-4775
Other information
Language
English
Type of outcome
Article in a journal
Field of Study
50206 Finance
Country of publisher
Singapore
Confidentiality degree
is not subject to a state or trade secret
References:
Impact factor
Impact factor: 1.200 in 2023
Organization unit
Faculty of Economics and Administration
UT WoS
001280331500001
Keywords in English
Multifractional Brownian motion; Hurst exponent; long-range dependence; European option pricing
Tags
Tags
International impact, Reviewed
Changed: 7/2/2025 09:24, Mgr. Alžběta Karolyiová
Abstract
V originále
Fractional Brownian motion has become a standard tool to address long-range dependence in financial time series. However, a constant memory parameter is too restrictive to address different market conditions. Here, we model the price fluctuations using a multifractional Brownian motion assuming that the Hurst exponent is a time-deterministic function. Through the multifractional Ito calculus, both the related transition density function and the analytical European Call option pricing formula are obtained. The empirical performance of the multifractional Black-Scholes model is tested by calibration of option market quotes for the SPX index and offers best fit than its counterparts based on standard and fractional Brownian motions.