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

  • Wang, Xiao-Tian
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    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437110010538
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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 390 (2011)
    Issue (Month): 9 ()
    Pages: 1623-1634

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    Handle: RePEc:eee:phsmap:v:390:y:2011:i:9:p:1623-1634
    Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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