The valuation of European option with transaction costs by mixed fractional Merton model

2017/02/01 by Foad Shokrollahi, Shokrollahi, Foad
Economics, Econometrics and Finance · #FOS: Economics and business #FOS: Mathematics #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Pricing of Securities (q-fin.PR) #Probability (math.PR) #Stochastic processes and financial applications

paper · pdf · doi:10.48550/arxiv.1702.00152

openalex publication_date 2017/02/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

This paper deals with the problem of discrete-time option pricing by the mixed fractional version of Merton model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option pricing formula is obtained. We also investigate the effect of the time-step δt and the Hurst parameter H on our pricing option model, which reveals that these parameters have high impact on option pricing. The properties of this model are also explained.

Citations

• Availability: A heuristic for judging frequency and probability
• The Pricing of Options and Corporate Liabilities

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