Geometric Fractional Brownian Motion Perturbed by Fractional Ornstein-Uhlenbeck Process and Application on KLCI Option Pricing - Open Access Library Journal

OALibJ > Vol.3 No.8, August 2016

Volume 3, Issue 8 (August 2016)

ISSN Print: 2333-9705 ISSN Online: 2333-9721

Google-based Impact Factor: 0.73 Citations

Geometric Fractional Brownian Motion Perturbed by Fractional Ornstein-Uhlenbeck Process and Application on KLCI Option Pricing ()

HTML XML

Download as PDF (Size: 537KB) PP. 1-12

DOI: 10.4236/oalib.1102863 1,270 Downloads 1,806 Views Citations

Author(s)

Mohammed Alhagyan^1,2*, Masnita Misiran¹, Zurni Omar¹

Affiliation(s)

¹Department of Mathematics and Statistics, School of Quantitative Sciences, Universiti Utara Malaysia, Sintok, Kedah, Malaysia.
²Department of Mathematics, Community College in Al-Aflaj, Sattam University, Al Kharj, KSA.

ABSTRACT

This paper presents an enhanced model of geometric fractional Brownian motion where its volatility is assumed to be stochastic volatility model that obeys fractional Ornstein-Uhlenbeck process. The method of estimation for all parameters (α, β, m, μ, H1, and H2) in this model is derived. We calculated the value of European call option using the estimates based on the methods of Masnita [1] [2] and Kukush [3], traditional Black-Scholes European option price, in addition to proposed model in order to make comparison study.

KEYWORDS

Geometric Fractional Brownian Motion, Fractional Ornstein-Uhlenbeck Process, Long Memory Stochastic Volatility, Innovation Algorithm, Constraint Transcription Method, Segmentation, Option Pricing, KLCI

Share and Cite:

Alhagyan, M. , Misiran, M. and Omar, Z. (2016) Geometric Fractional Brownian Motion Perturbed by Fractional Ornstein-Uhlenbeck Process and Application on KLCI Option Pricing. Open Access Library Journal, 3, 1-12. doi: 10.4236/oalib.1102863.

Cited by

[1]	The effects of incorporating memory and stochastic volatility into GBM to forecast exchange rates of Euro
	Alexandria Engineering Journal, 2022

[2]	ON EFFECTS OF STOCHASTIC VOLATILITY AND LONG MEMORY TOWARDS MORTGAGE INSURANCE MODELS: AN EMPIRICAL STUDY
	2021

[3]	FORECASTING THE PERFORMANCE OF TADAWUL ALL SHARE INDEX (TASI) USING GEOMETRIC BROWNIAN MOTION AND GEOMETRIC FRACTIONAL …
	2020

[4]	A Comparative Analysis of Estimation Methods For Stochastic Differential Equations: An Application to South African Interest Rates
	2020

[5]	Geometric fractional Brownian motion model for commodity market simulation
	2020

	customer@scirp.org
	+86 18163351462(WhatsApp)
	1655362766

	Paper Publishing WeChat

Journals Menu

Home

About SCIRP

Service

Policies