Theoretical and Natural Science
- The Open Access Proceedings Series for Conferences
Theoretical and Natural Science
Vol. 34, 02 April 2024
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European Option Pricing Based on FSDE Driven by Fractional Brownian Motion
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Abstract
In the actual financial market, the classical Black-Scholes (B-S) model can’t perfectly describe the process of stock price. Besides, memory effect is an important phenomenon in financial systems. Thus, in this paper, we establish a fractional order stochastic differential equations (FSDE) which is driven by fractional Brownian motion (fBm) to describe the effect of noise memory and trend memory in financial pricing. Finally, we derive a European option pricing formula based on the established model. After conducting an empirical analysis based on the SSE 50ETF, we find that the established model performs better than the traditional one.
Keywords
European option pricing, Fractional stochastic differential equations, Fractional Brownian motion, Hurst index, Empirical research
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Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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- Volume Title
- Proceedings of the 3rd International Conference on Computing Innovation and Applied Physics
- ISBN (Print)
- 978-1-83558-369-2
- ISBN (Online)
- 978-1-83558-370-8
- Published Date
- 02 April 2024
- Series
- Theoretical and Natural Science
- ISSN (Print)
- 2753-8818
- ISSN (Online)
- 2753-8826
- DOI
- 10.54254/2753-8818/34/20241190
- Copyright
- 02 April 2024
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited