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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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

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

First available in Project Euclid: 28 November 2007

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Digital Object Identifier

Zentralblatt MATH identifier

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

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

Copyright © 2006, Institute of Mathematical Statistics


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.

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