Relativistic Black-Scholes model
AbstractBlack-Scholes equation, after a certain coordinate transformation, is equivalent to the heat equation. On the other hand the relativistic extension of the latter, the telegraphers equation, can be derived from the Euclidean version of the Dirac equation. Therefore the relativistic extension of the Black-Scholes model follows from relativistic quantum mechanics quite naturally. We investigate this particular model for the case of European vanilla options. Due to the notion of locality incorporated in this way one finds that the volatility frown-like effect appears when comparing to the original Black-Scholes model.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1307.5122.
Date of creation: Jul 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
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- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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