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A Framework for Derivative Pricing in the Fractional Black-Scholes Market

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Author Info
Ciprian Necula (Faculty of Finance and Banking, Bucharest University of Economics)

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Abstract

The aim of this paper is to develop a framework for evaluating derivatives if the underlying of the derivative contract is supposed to be driven by a fractional Brownian motion with Hurst parameter greater than 0.5. For this purpose we first prove some results regarding the quasi-conditional expectation, especially the behavior to a Girsanov transform. We obtain the risk-neutral valuation formula and the fundamental evaluation equation in the case of the fractional Black-Scholes market.

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File URL: http://www.dofin.ase.ro/carfib/wpaefr/wpaefr_19.pdf
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File Function: First version, 2008
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Publisher Info
Paper provided by Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB in its series Advances in Economic and Financial Research - DOFIN Working Paper Series with number 19.

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Date of creation: Oct 2008
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Handle: RePEc:cab:wpaefr:19

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Web page: http://www.dofin.ase.ro/carfib/
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Related research
Keywords: fractional Brownian motion; fractional Black-Scholes market; quasiconditional expectation; mathematical finance; contingent claim;

Find related papers by JEL classification:
C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
C60 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - General
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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  1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
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This page was last updated on 2009-11-26.

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