Publication details
A multifractional option pricing formula
Authors | |
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Year of publication | 2024 |
Type | Article in Periodical |
Magazine / Source | arxiv |
MU Faculty or unit | |
Citation | |
Web | http://arxiv.org/pdf/2303.16314 |
Doi | http://dx.doi.org/10.48550/arXiv.2303.16314 |
Keywords | Multifractional Brownian motion; Hurst exponent; Long-range dependence; European option pricing |
Description | Fractional Brownian motion has become a standard tool to address long-range dependence in financial time series. However, a constant memory parameter is too restrictive to address different market conditions. Here we model the price fluctuations using a multifractional Brownian motion assuming that the Hurst exponent is a time-deterministic function. Through the multifractional Ito calculus, both the related transition density function and the analytical European Call option pricing formula are obtained. The empirical performance of the multifractional Black-Scholes models is tested and appears superior to its fractional and standard counterparts. |