Institute of Mathematical Statistics Lecture Notes - Monograph Series

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.

Chapter information

Source
Hwai-Chung Ho, Ching-Kang Ing, Tze Leung Lai, eds., Time Series and Related Topics: In Memory of Ching-Zong Wei (Beachwood, Ohio, USA: Institute of Mathematical Statistics, 2006), 149-164

Dates
First available in Project Euclid: 28 November 2007

Permanent link to this document
https://projecteuclid.org/euclid.lnms/1196285972

Digital Object Identifier
doi:10.1214/074921706000001012

Zentralblatt MATH identifier
1268.91177

Subjects
Primary: 91B28 91B70: Stochastic models
Secondary: 60H15: Stochastic partial differential equations [See also 35R60] 60H40: White noise theory

Keywords
fractional Black-Scholes model fractional Brownian motion fractional constant elasticity of volatility model fractional Ito's lemma volatility skew white noise Wick calculus

Rights
Copyright © 2006, Institute of Mathematical Statistics

Citation

Chan, Ngai Hang; Ng, Chi Tim. Fractional constant elasticity of variance model. Time Series and Related Topics, 149--164, Institute of Mathematical Statistics, Beachwood, Ohio, USA, 2006. doi:10.1214/074921706000001012. https://projecteuclid.org/euclid.lnms/1196285972


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