Time-changed geometric fractional Brownian motion and option pricing with transaction costs

This paper deals with the problem of discrete time option pricing by a fractional subdiffusive Black–Scholes model. The price of the underlying stock follows a time-changed geometric fractional Brownian motion. By a mean self-financing delta-hedging argument, the pricing formula for the European call option in discrete time setting is obtained.     

Scaling and long-range dependence in option pricing II: Pricing European option with transaction costs under the mixed Brownian–fractional Brownian model

This paper deals with the problem of discrete-time option pricing by the mixed Brownian–fractional Brownian 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. In particular, the minimal pricing c_min(t,s_t) of an option under transaction costs is obtained, which shows that timestep δt and Hurst exponent H play an important role in option pricing with transaction costs. In addition, we also show that there exists fundamental difference between the continuous-time trade and discrete-time trade and that continuous-time trade assumption will result in underestimating the value of a European call option.     

Pricing model for equity warrants in a mixed fractional Brownian environment and its algorithm

This paper deals with the problem of pricing equity warrants in a mixed fractional Brownian environment. Based on the quasi-conditional expectation and the Fourier transform, we present the pricing model for equity warrants. Moreover, a hybrid intelligent algorithm, which is based on the Genetic Algorithm, is employed to solve the nonlinear optimization problem. The performance of our model and the proposed algorithm have been illustrated with some numerical examples.     

The valuation of equity warrants in a fractional Brownian environment

In this paper, we discuss the valuation of equity warrants in the geometric fractional Brownian environment based on the equilibrium condition. Using the conditional expectation we present a fractional pricing model for equity warrants and analyze the influence of the Hurst parameter. Then we propose an optimization procedure to obtain the valuation of equity warrants. Some numerical examples are given to demonstrate the pricing results by comparing different pricing models. Furthermore, we provide an empirical study to show how to apply our model in realistic contexts, and these comparative results of different pricing models show that the pricing model proposed in this paper matches the actual price quite well.     

The application of fractional derivatives in stochastic models driven by fractional Brownian motion

In this paper, in order to establish connection between fractional derivative and fractional Brownian motion (FBM), we first prove the validity of the fractional Taylor formula proposed by Guy Jumarie. Then, by using the properties of this Taylor formula, we derive a fractional Itô formula for H∈[1/2,1), which coincides in form with the one proposed by Duncan for some special cases, whose formula is based on the Wick Product. Lastly, we apply this fractional Itô formula to the option pricing problem when the underlying of the option contract is supposed to be driven by a geometric fractional Brownian motion. The case that the drift, volatility and risk-free interest rate are all dependent on t is also discussed.     

Black-Scholes Formula in Subdiffusive Regime

In the classical approach the price of an asset is described by the celebrated Black-Scholes model. In this paper we consider a generalization of this model, which captures the subdiffusive characteristics of financial markets. We introduce a subdiffusive geometric Brownian motion as a model of asset prices exhibiting subdiffusive dynamics. We find the corresponding fractional Fokker-Planck equation governing the dynamics of the probability density function of the introduced process. We prove that the considered model is arbitrage-free and incomplete. We find the corresponding subdiffusive Black-Scholes formula for the fair prices of European options and show how these prices can be evaluated using Monte-Carlo methods. We compare the obtained results with the classical ones.     

Generalised Geometric Brownian Motion: Theory and Applications to Option Pricing

Classical option pricing schemes assume that the value of a financial asset follows a geometric Brownian motion (GBM). However, a growing body of studies suggest that a simple GBM trajectory is not an adequate representation for asset dynamics, due to irregularities found when comparing its properties with empirical distributions. As a solution, we investigate a generalisation of GBM where the introduction of a memory kernel critically determines the behaviour of the stochastic process. We find the general expressions for the moments, log-moments, and the expectation of the periodic log returns, and then obtain the corresponding probability density functions using the subordination approach. Particularly, we consider subdiffusive GBM (sGBM), tempered sGBM, a mix of GBM and sGBM, and a mix of sGBMs. We utilise the resulting generalised GBM (gGBM) in order to examine the empirical performance of a selected group of kernels in the pricing of European call options. Our results indicate that the performance of a kernel ultimately depends on the maturity of the option and its moneyness.     

Pricing European option with transaction costs under the fractional long memory stochastic volatility model

This paper deals with the problem of discrete time option pricing using the fractional long memory stochastic volatility model with transaction costs. Through the ‘anchoring and adjustment’ argument in a discrete time setting, a European call option pricing formula is obtained.     

Comment on “Time-changed geometric fractional Brownian motion and option pricing with transaction costs” by Hui Gu et al.

The purpose of this comment is to point out the inappropriate assumption of “3αH>1$3\alpha H>1$” and two problems in the proof of “Theorem 3.1” in section 3 of the paper “Time-changed geometric fractional Brownian motion and option pricing with transaction costs” by Hui Gu et al. [H. Gu, J.R. Liang, Y. X. Zhang, Time-changed geometric fractional Brownian motion and option pricing with transaction costs, Physica A 391 (2012) 3971–3977]. Then we show the two problems will be solved under our new assumption.     

Low q-moment multifractal analysis of Gold price, Dow Jones Industrial Average and BGL-USD exchange rate

An estimate of the low q-moment values of the assumed multifractal spectrum of Gold price, Dow Jones Industrial Average (DJIA) and Bulgarian Lev - USA Dollar (BGL-USD) exchange rate over a 6 1/2 year time span has been made. The findings can be compared to the analysis made on 23 foreign currency exchange rates by Vandewalle and Ausloos but there is a clear indication of some differences. Comparison to fractional Brownian motion is made. The analysis shows that these three financial data are not likely fractal but rather multifractal indeed. Received 17 October 1998 and Received in final form 2 November 1998     

Scaling and long-range dependence in option pricing V: Multiscaling hedging and implied volatility smiles under the fractional Black-Scholes model with transaction costs

This paper deals with the problem of discrete time option pricing using the fractional Black-Scholes model with transaction costs. Through the ‘anchoring and adjustment’ argument in a discrete time setting, a European call option pricing formula is obtained. The minimal price of an option under transaction costs is obtained. In addition, the relation between scaling and implied volatility smiles is discussed.     

带反馈的分数阶耦合布朗马达的定向输运

研究具有幂律记忆性的带反馈耦合布朗马达的定向输运现象, 引入分数阶理论, 建立了带反馈的分数阶耦合布朗马达模型, 利用分数阶差分法求得模型数值解并分析了模型参数对合作定向输运性质的影响. 仿真结果表明, 系统的记忆性通过影响带反馈的棘齿势的打开和闭合而影响粒子的定向输运, 即当系统的阶数在较小的范围内, 系统的记忆性会使带反馈的棘齿势的开关频率增加, 从而增大定向流速; 当系统其他参数(势垒高度、噪声强度等)固定时, 输运速度随着阶数的变化出现广义随机共振现象.     

Pricing European options with a log Student’s t-distribution: A Gosset formula

The distributions of returns for stocks are not well described by a normal probability density function (pdf). Student’s t-distributions, which have fat tails, are known to fit the distributions of the returns. We present pricing of European call or put options using a log Student’s t-distribution, which we call a Gosset approach in honour of W.S. Gosset, the author behind the nom de plume Student. The approach that we present can be used to price European options using other distributions and yields the Black-Scholes formula for returns described by a normal pdf.     

系统非对称性及记忆性对布朗马达输运行为的影响

在对分数阶布朗马达输运现象研究的基础上,引入了描述系统势场对称性的参数(简称对称性参数),并详细分析了该参数及记忆性参数(分数阶阶数)对粒子输运状态的影响.仿真结果表明,分数阶阶数和对称性参数的共同作用会使得布朗粒子形成定向输运反向流,反向后达到最大平均流速所对应的阶数与外加驱动力频率无关联,但会随对称性参数的增加而单调递增.     

Long-memory volatility in derivative hedging

The aim of this work is to take into account the effects of long memory in volatility on derivative hedging. This idea is an extension of the work by Fedotov and Tan [Stochastic long memory process in option pricing, Int. J. Theor. Appl. Finance 8 (2005) 381–392] where they incorporate long-memory stochastic volatility in option pricing and derive pricing bands for option values. The starting point is the stochastic Black–Scholes hedging strategy which involves volatility with a long-range dependence. The stochastic hedging strategy is the sum of its deterministic term that is classical Black–Scholes hedging strategy with a constant volatility and a random deviation term which describes the risk arising from the random volatility. Using the fact that stock price and volatility fluctuate on different time scales, we derive an asymptotic equation for this deviation in terms of the Green's function and the fractional Brownian motion. The solution to this equation allows us to find hedging confidence intervals.     

On the relation between the fractional Brownian motion and the fractional derivatives

The definition and simulation of fractional Brownian motion are considered from the point of view of a set of coherent fractional derivative definitions. To do it, two sets of fractional derivatives are considered: (a) the forward and backward and (b) the central derivatives, together with two representations: generalised difference and integral. It is shown that for these derivatives the corresponding autocorrelation functions have the same representations. The obtained results are used to define a fractional noise and, from it, the fractional Brownian motion. This is studied. The simulation problem is also considered.     

分数阶布朗马达在闪烁棘齿势中的合作输运现象

引入分数阶微积分理论,建立耦合分数阶布朗马达在闪烁棘齿势中的合作输运模型, 利用分数阶差分法求得模型数值解并分析了模型参数对合作定向输运性质的影响. 发现在具有记忆性的分数阶棘齿系统中, 系统阶数与粒子间耦合强度不仅可影响粒子链输运速度, 还可使粒子链出现与整数阶方向相反的定向流; 在阶数固定下, 定向输运速度将随参数(噪声强度、耦合强度、棘齿势峰值高度)变化出现广义随机共振现象. 关键词： 分数阶布朗马达 闪烁棘齿势 合作定向输运 广义随机共振     

Stieltjes Integrals of Hölder Continuous Functions with Applications to Fractional Brownian Motion

We give a new estimate on Stieltjes integrals of Hölder continuous functions and use it to prove an existence-uniqueness theorem for solutions of ordinary differential equations with Hölder continuous forcing. We construct stochastic integrals with respect to fractional Brownian motion, and establish sufficient conditions for its existence. We prove that stochastic differential equations with fractional Brownian motion have a unique solution with probability 1 in certain classes of Hölder-continuous functions. We give tail estimates of the maximum of stochastic integrals from tail estimates of the Hölder coefficient of fractional Brownian motion. In addition we apply the techniques used for ordinary Brownian motion to construct stochastic integrals of deterministic functions with respect to fractional Brownian motion and give tail estimates of its maximum.     

分数阶双头分子马达的欠扩散输运现象

研究具有幂律记忆性的细胞液中双头分子马达的定向输运现象,选取幂函数作为广义Langevin方程的阻尼核函数,建立了分数阶过阻尼耦合Brown马达模型,讨论了阶数及耦合系数对双头分子马达定向输运速度的影响. 仿真结果表明,分数阶过阻尼双头分子马达也会产生定向输运现象,并且在某些阶数下会产生整数阶情形所不具有的反向定向流. 当噪声强度固定时,输运速度随着阶数以及耦合系数的变化均会出现广义随机共振现象. 特别地,研究发现双头分子马达在记忆闪烁棘轮势中具有某些单头分子马达所不具备的运动特性,定向流的大小和方向由噪声与双头间作用力相互耦合控制. 关键词： 分数阶双头分子马达 欠扩散 定向输运 广义随机共振     

分形理论在分子动力学模拟中的应用

本文基于分形理论提出了一个假说,认为实际流体分子的无规运动可以用分数布朗函数作为概率密度函数来描写,而其分数维数可根据分子运动的图像确定。本文以流体Ar作为对象进行了分子动力学模拟,根据分子动力学模拟的结果提取了运动的分数维数,构造了描述分子无规运动的分数布朗函数,并对所提出的假说进行了验证。