Journal of Mathematical Finance

Volume 8, Issue 4 (November 2018)

ISSN Print: 2162-2434   ISSN Online: 2162-2442

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Mixed Fractional Merton Model to Evaluate European Options with Transaction Costs

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DOI: 10.4236/jmf.2018.84040    873 Downloads   1,736 Views  Citations
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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.

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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.

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