J 2024

A multifractional option pricing formula

ARANEDA, Axel A.

Basic information

Original name

A multifractional option pricing formula

Authors

Edition

FLUCTUATION AND NOISE LETTERS, SINGAPORE, WORLD SCIENTIFIC PUBL CO PTE LTD, 2024, 0219-4775

Other information

Language

English

Type of outcome

Článek v odborném periodiku

Field of Study

50206 Finance

Confidentiality degree

není předmětem státního či obchodního tajemství

References:

Impact factor

Impact factor: 1.800 in 2022

Organization unit

Faculty of Economics and Administration

DOI

UT WoS

001280331500001

Keywords in English

Multifractional Brownian motion; Hurst exponent; long-range dependence; European option pricing

Tags

International impact, Reviewed
Změněno: 12/9/2024 13:14, 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.