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Pricing European and Barrier Options 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 obtain the valuation formulas for European and barrier options if the underlying of the option contract is supposed to be driven by a fractional Brownian motion with Hurst parameter greater than 0.5. The paper is build upon the framework developed in Necula (2007) for the valuation of derivative products in the fractional Black-Scholes market. We also obtain a reflection principle for the fractional Brownian motion.

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File URL: http://www.dofin.ase.ro/carfib/wpaefr/wpaefr_20.pdf
File Format: application/pdf
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 20.

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Date of creation: Oct 2008
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Handle: RePEc:cab:wpaefr:20

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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; the reflection principle for the fractional Brownian motion; mathematical finance; European option; barrier option;

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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This page was last updated on 2009-11-26.

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