European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete Time
In this paper, the approximate stationarity of the second-order moment increments of the sub-fractional Brownian motion is given. Based on this, the pricing model for European options under the sub-fractional Brownian regime in discrete time is established. Pricing formulas for European options are...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2023-12-01
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| Series: | Fractal and Fractional |
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| Online Access: | https://www.mdpi.com/2504-3110/8/1/13 |
| _version_ | 1797343925346762752 |
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| author | Zhidong Guo Yang Liu Linsong Dai |
| author_facet | Zhidong Guo Yang Liu Linsong Dai |
| author_sort | Zhidong Guo |
| collection | DOAJ |
| description | In this paper, the approximate stationarity of the second-order moment increments of the sub-fractional Brownian motion is given. Based on this, the pricing model for European options under the sub-fractional Brownian regime in discrete time is established. Pricing formulas for European options are given under the delta and mixed hedging strategies, respectively. Furthermore, European call option pricing under delta hedging is shown to be larger than under mixed hedging. The hedging error ratio of mixed hedging is shown to be smaller than that of delta hedging via numerical experiments. |
| first_indexed | 2024-03-08T10:54:52Z |
| format | Article |
| id | doaj.art-01fb0dd8f1df41d1a20bc4ee7d89462b |
| institution | Directory Open Access Journal |
| issn | 2504-3110 |
| language | English |
| last_indexed | 2024-03-08T10:54:52Z |
| publishDate | 2023-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Fractal and Fractional |
| spelling | doaj.art-01fb0dd8f1df41d1a20bc4ee7d89462b2024-01-26T16:35:11ZengMDPI AGFractal and Fractional2504-31102023-12-01811310.3390/fractalfract8010013European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete TimeZhidong Guo0Yang Liu1Linsong Dai2College of Mathematics and Science, Anqing Normal University, Anqing 246011, ChinaCollege of Mathematics and Science, Anqing Normal University, Anqing 246011, ChinaCollege of Mathematics and Science, Anqing Normal University, Anqing 246011, ChinaIn this paper, the approximate stationarity of the second-order moment increments of the sub-fractional Brownian motion is given. Based on this, the pricing model for European options under the sub-fractional Brownian regime in discrete time is established. Pricing formulas for European options are given under the delta and mixed hedging strategies, respectively. Furthermore, European call option pricing under delta hedging is shown to be larger than under mixed hedging. The hedging error ratio of mixed hedging is shown to be smaller than that of delta hedging via numerical experiments.https://www.mdpi.com/2504-3110/8/1/13discrete-time modelsub-fractional Brownian motiondelta hedgingmixed hedginghedging error ratio |
| spellingShingle | Zhidong Guo Yang Liu Linsong Dai European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete Time Fractal and Fractional discrete-time model sub-fractional Brownian motion delta hedging mixed hedging hedging error ratio |
| title | European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete Time |
| title_full | European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete Time |
| title_fullStr | European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete Time |
| title_full_unstemmed | European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete Time |
| title_short | European Option Pricing under Sub-Fractional Brownian Motion Regime in Discrete Time |
| title_sort | european option pricing under sub fractional brownian motion regime in discrete time |
| topic | discrete-time model sub-fractional Brownian motion delta hedging mixed hedging hedging error ratio |
| url | https://www.mdpi.com/2504-3110/8/1/13 |
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