Mixed Fractional Merton Model to Evaluate European Options with Transaction Costs ()
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.
Share and Cite:
Shokrollahi, F. (2018) Mixed Fractional Merton Model to Evaluate European Options with Transaction Costs.
Journal of Mathematical Finance,
8, 623-639. doi:
10.4236/jmf.2018.84040.